How good are Reversal Chart Patterns?

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Head and Shoulder

The SHS or H&S is a very strong reversal pattern which can often be found at Elliot Wave 5 or before EW 1 or complex corection movements as shown in the pic below. They can also intertwine and share movements or can build mutants with multiple shoulders. A SHS can also have a double top/bottom head. The pattern is finished when the neckline is broken. Often the market reverses and comes back to this TL before it bounces into an impulse wave. As TP look for strong S/R or Fibonacchi levels like 127.2, 141.4 or 161.8. It doesn't appear very often, but it is a powerful pattern every trader should know.

Double and Tripple Bottom/Top

The double bottom or top is a reversal pattern that can be seen quite often on all pairs and tfs and also can have a third peak. Beware that it often is the result of an established support/resistance and can be retested later and sometimes will be broken. For agressive turning point scalping it is a very helpful confirmation and for breakout trader a starting point.

EURUSD H1 2015_11_09 SHS.pngSee the first Double Bottom in the middle of the pic. Some may say it has three peaks (whatever), but it doesn't change the fact that the market shows potential strength already in the first half of the Double Bottom. The long wicks on the right side testing and returning back over and over again makes it clear, the market isn't willing to move further down here - later maybe, but not now. For a PA scalper this is a very strong signal to go long here right at the bottom. There is no better risk\reward possible and your position always weaker than here. It's very easy to locate with your eyes. Naked trader are no wizards, they also cook only with water. 

EURUSD H1 2015_11_09 SHS.png

Well explained and good naked, i means trading [smile] logical and it make sense [crazy]
Indicator is just a tool.

Use it only if it can benefit you. Leave it if you don't know how to use it optimally.

SHS and Double Top/Bottom are the most important two reversal chart patterns in Forex. In stockmarket are some more but these are very seldom in the FX universe. Different markets - other preferences of patterns, I guess. 


On higher tfs the RBA seems to have fun from time to time and gives us a diamond. With some fantasy you'll find more diamonds [wink]  /* I found more and will give pics later

AUDCAD H4 2014_06_05 Diamond.png 

Cup and Handle

A well know pattern in stockmarket is the cup and handle pattern. In good old days it was also in Forex present. Today, Forex traders seem to prefer faster reversals or at least ones with more volatility like the SHS.

GBPAUD H4 2016_11_21 CaH.png
AUDCAD H4 2014_06_05 Diamond.png
GBPAUD H4 2016_11_21 CaH.png

In his book 'Trading for a Living' Alex Elder called a failed SHS which neckline isn't broken and instead the price goes in the opposite direction "Hound of the Baskervilles".

A pack of SHS.png 

A pack of SHS.png

I always wonder whether those patterns can be helpful for real trading.
They look very good on history, but what about real time and precise entries...
Though, I know a few persons who trade crossing triangles (trend lines)
with some success.

I guess they are extremely helpful. I trade them all the time and naked traders use only these pattern along with continuation patterns and Japanese candle sticks. So they must be helpful, it only depends on what you trade. For trend followers it may help less but when you trade "Buy low, Sell high" a SHS is a gift you take gladly. You have a High, a HH, a LH and the Lows are connected with a TL, the neckline. You know, when the neckline is broken an impulse wave comes. Unless an impulse wave comes in opposite direction (Hound of Baskervilles), but this case is rare. What could be better to be on the trend train before the trend is established and are out when it is over and not when a new trend forms? Predicting begin and end of a trend, right? And this is one part of the predicting game.

Thank you. For which financial instruments the patterns work best?
For instance, is there a difference in effectiveness for majors (mostly traded)
and crosses (whose rates are determined mainly by majors)?

No, they are on all tfs and pairs. Here a pic of today morning of GBPJPY M5.
GBPJPY M5 2017_03_02.PNG 
Gold and even on Soybeans, what you want.
Soybeans 2016_02_08.png
GBPJPY M5 2017_03_02.PNG

[QUOTE=wojtek]I always wonder whether those patterns can be helpful for real trading.
They look very good on history, but what about real time and precise entries...
Though, I know a few persons who trade crossing triangles (trend lines)
with some success.[/QUOTE]

Chart patterns are overfitted to reversal or trend ending price action areas.  As such, they tend to keep printing patterns until the reversal ends or a new trend begins.  Which means, as you suspect, they can send multiple false signals, which can lead to significant account drawdown even if you guess the new trend direction correctly.

I find they are useful to confirm the beginning of a new trend (or end of an old trend), which then allows you to look for entries later, with a different strategy after the patterns have settled.

They also seem to work better on higher timeframes, like 30m plus.

Thank you.  Your opinion confirms my intuition and some, rather small experience.
Anyhow, this kind of trading seems to require especially much practice.

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