DAYTRADING Fundamentals Message Board

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Strategies & Market Trends : DAYTRADING Fundamentals

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To: TFF who wrote (9066)	6/20/2000 6:08:00 PM
From: TraderAlan	Read Replies (5) of 18137

TFF, It begins with another Elder concept from Trading for a Living, the Hound of the Baskervilles. If I recall that was a Head and Shoulders pattern that went straight up instead of straight down. Most of the classic patterns have a bias, ie people read in books that they are supposed to go up or go down. For example a descending triangle is supposed to go down while a cup and handle should go up. These same patterns usually have a trendline or support-resistance line or high or low that negates the pattern. In a descending triangle, you can join the descending highs into a straight line. The pattern failure trade signals when price breaks through that line. The basic TA types that saw the pattern in a book or read about it at a web site see the pattern start to fail and they jump ship. You're positioned the other way and get to ride their panic/fear/dumbness. It isn't only newbies that get caught. I sure have enough times when I believed in a breakout and positioned myself in advance. But it also goes back to a disagreement that I have with one of Raschke's stories about a noble S&P trader that made his living just selling 5-min ledge formations. I think those days are over and if you want to succeed with TA or pattern trading, you must be a lot more flexible and counter-intuitive. I think the Net forced a major change on TA. It brought it into the common trading knowledge and altered the crowd chemistry. The funny thing is that you now have all this testosterone that thinks TA doesn't work because it doesn't predict outcomes the same way that it did in the past. That's because there is a lot of money to be made by fading the growing crowd that's familiar with charts. But that is just another way of using TA. Alan

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