Complex Chart Patterns Are Just Combinations Of The Simpler Ones

By Lawrence

iStock_000012693751XSmall

Part of Art of Chart Reading

Many traders are obsessed with the idea that there exists secret uber chart patterns that produce superior returns with virtually no risk involved. If you are one of them, you should reread what I have written from the beginning of this series. Maybe there exists such patterns but it is also likely to happen rarely, so rare that it is not enough to produce profit frequent enough. For patterns that recur more often, there is no escape from dealing with the possibility that the future refuses to unfold as expected.

Instead of paying too much attention towards complex chart patterns, it is often better to focus on simple chart patterns and their combined predictive power. Think of simple chart patterns as tools to manage your risk when applied individually. Each pattern you recognize on the chart gives you certain expectations of what may happen in the future. Sometimes they tell a coherent story making you feel like you are in control. Sometimes they provide conflicting projections into the future making you confused.

(member-only content below)


Part of our premium service, login now or upgrade your membership to view this report

Share

Comments
  • mel November 21, 2013 at 7:34 am

    LC what about simple patterns displayed in volume/price-based candles that made up the patterns or bar-driven candles that form the patterns…

    • Lawrence Chan November 21, 2013 at 6:39 pm

      Those are price bar patterns, not swing patterns I am talking about here.

      Price patterns are completely different because the micro swing information within the bars were lost due to summarization where you only have the end stats (open, high, low, close).

  • mel November 21, 2013 at 7:32 pm

    Yes I know, I noted that vol/price-based candles do produced patterns like drive-up, 3 drives, HNS but not sure how confirmed are these…

    • Lawrence Chan November 22, 2013 at 9:18 am

      My reply above already gave you the answer. Because the swing information is lost permanently, patterns you see are not as reliable as the ones that you have the swing information.

  • mel November 22, 2013 at 9:25 am

    Many Thanks !

  • You must be logged in to comment. Log in