That pretty well sums up the predictive value of most patterns.
You and any of the other (I know who you are <g>) doubters of the predictive value of patterns may want to take a close look at this chart.
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I used GNSS as it has been extremely predictable in its moves to the traders who believe in them as I do. The chart has a plethora of clear patterns, when on an average chart, you may see only a few. They seem to be easier to spot in wide range, volatile markets.
Each one of these patterns gave several days notice for the good moves, and even more if you saw them forming and were patient waiting for some of the bullflags and bearflags to break. And buy stops work too, because if they never break out or down, there is no loss, no trade. But if they do, then a trade in motion - in the direction you predicted by watching the patterns, a winning trade can fall right into your lap. This is what I was trying to say last night when I said "Because they tend to break out just when they look about to break down". I was exhausted from skiing and did not say it clearly!!
A bullflag looks about to breakdown totally, usually through the 20 ema (and some times they do as a fakeout) when it forms its bottom, which is usually on support or a moving average and it is consolidating a bit. They also slant downward which is totally deceiving to the eye at first. And bearish wedges look like breakouts to the eye at first. Until the very top. Klunk.
With the volatility of the market, they do not always work. If the Nasdaq breaks down at the exact moment a pattern breaks out, chances are the pattern will fail. And vice versa. If a bearish wedge is about to crack right as the NQS take off, your stock is going with it wedgie or not.
It's just a failure of the pattern, just like a failure of a stock price to hold a certain level.
But they work so well, they can give you an edge, which we all know is crucial to survive. Whatever edge you've got!
You can see a really clear bullflag on the nasdaq if you look at a daily chart, in bar form is easier to see.
It broke out of a bullflag on 1/3 at the open, that started to form at the high on 12/6. It took an entire month to form. And the day it broke out, we had an up day of over 50 points on the nasdaq. And the trendlines of the pattern had been drawn since December so when it broke, we knew it's potential. I was 100% long in my swing trades while I waited, so patterns can even help you to be positioned correctly in the markets! With stops in case the failed of course.
And often, a pattern on an index can be evident in may stocks at the exact same time. There were a huge amount of big nasdaq stocks with bearish rising wedges last night, so many that Teresa Lo devoted her entire newsletter to it.
I know one of them was NVDA, and it lost 4 pts from early today. I have not checked the others, but I'll bet they went klunk too. So NVDA had a bearish rising wedge on the daily as of last night, and it tanked, and the bullflag on GNSS broke out and it practically ignored the selloff!
Another fine example is today's nasdaq 15 min chart. Both tops (11 am and 1:30) were preceded by perfect bearish rising wedges. I draw the trendlines on my moving charts. That's why I was able to hold my short position without losing my mind <g> Volume was dropping on both rises which confirmed the patterns, and other indicators like the ADX and overbought stochastic levels helped.
I'm an artist, I see patterns everywhere, there's nothing I can do about it unless I close my charts <G> And by watching them, reading about them and studying them in motion, I've become a believer. And still have so much to learn. Many of the patterns have rules according to Edwards and Magee, such as declining volume on a bearflag.
And if the nasdaq drops a bit more over the next few days, it's going to put in a handle on a cup and handle which it needs time to form properly so it does not fail... And that pattern is one of the best, as far as bullish patterns go.
So I think all you doubters should convert <VBG>
Ignore 'em if you want, but don't knock 'em! |
