Head and Shoulders
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.
See 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.
Re: How good are Reversal Chart Patterns?
2Well explained and good naked, i means trading logical and it make sense
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.
Use it only if it can benefit you. Leave it if you don't know how to use it optimally.
Re: How good are Reversal Chart Patterns?
3SHS 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.
Diamond
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 /* I found more and will give pics later
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.
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.
Diamond
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 /* I found more and will give pics later
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.
Re: How good are Reversal Chart Patterns?
4In 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".
Re: How good are Reversal Chart Patterns?
5I 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.
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.
Re: How good are Reversal Chart Patterns?
6I 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.
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.
Re: How good are Reversal Chart Patterns?
7Thank 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)?
For instance, is there a difference in effectiveness for majors (mostly traded)
and crosses (whose rates are determined mainly by majors)?
Re: How good are Reversal Chart Patterns?
8No, they are on all tfs and pairs. Here a pic of today morning of GBPJPY M5.
Gold and even on Soybeans, what you want.
Gold and even on Soybeans, what you want.
Re: How good are Reversal Chart Patterns?
9Chart 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.wojtek wrote: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 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.
Re: How good are Reversal Chart Patterns?
10Thank you. Your opinion confirms my intuition and some, rather small experience.
Anyhow, this kind of trading seems to require especially much practice.
Anyhow, this kind of trading seems to require especially much practice.