This one chart of a head and shoulders pattern does not mean every time you see this pattern you short: Trading is a game of probabilities, not definites. The bigger picture tells you whether a chart pattern SHOULD work or not. Right before they breakout or break down, is it so obvious? Don’t let hindsight fool you into believing that was a high probability setup. You don’t launch a case with just one piece of evidence! Watching Out For HindsightĬhart patterns look obvious in hindsight. You gather as much evidence as you can before you start prosecuting or defending. When you are a trader, you are like a lawyer building a case. The bigger picture trend of the stock (daily, weekly, monthly).If it was, no one would work a regular job! There is a lot more to consider in a trade than the chart pattern: Trading is so much more than just patterns. Strategies consider multiple market variables and the bigger picture of a stock. A real trading strategy accounts for multiple variables in the markets, not just one. Chart patterns are NOT a trading strategy. While chart patterns can indicate a significant change in supply and demand in a stock, they alone are NOT a reason to enter a trade. The truth is, to be consistently profitable you need to consider way more than just chart patterns. The overall context of the stock determines the probability of a chart pattern working or not. A classic chat pattern many know of is the flag pattern:Įasy and simple to trade, right? Unfortunately, when people show you this they cherry-pick the best ones. Patterns can indicate the potential of an upward or downward price move in the markets. Patterns are the distinctive formations created by the movements of stock ( or any market) prices on a candlestick chart. Now that you have a basic understanding of reading candlesticks, let’s dive into the basics of how to read stock chart patterns. A 1-minute doji close is 100x less significant than a doji close on the daily chart. Remember: Always give more weight to candlestick shapes in the HIGHER time frames. Understanding them is important for having a basic understanding of technical analysis: Candlesticks are the language of technical analysis and are the building blocks of every pattern. Before getting into the effectiveness of chart patterns, let’s start with the basics in case you are new. Here is what you need to know about chat patterns and the truth about their effectiveness: Understanding Candle SticksĮvery chart pattern is made up of candlesticks. This blog will show you the difference between a chart pattern, and an actual trading strategy, and what goes into making a successful, high-probability trade. This is one of the biggest misconceptions new traders have, that we are going to correct today. While chart patterns are useful for providing information about a stock’s trend, they alone will NOT make you a successful trader. How many times a day on social media are you shilled a magical stock chart pattern that can instantly make you a consistently profitable trader?
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