Chart Patterns Don't Work?

[Arya Stark]

Two reasons why chart patterns probably don't work

1. Please imagine 2 charts of today - 1h chart and 1.5h chart. Would they look the same? We simply arbitrary decided to divide the day into 24 hours. If we divided it in 16 hours, one hour would include 90 minutes. And then our 1h chart would look completely different. So, the patterns of which chart should you go by?
2. Can you imagine that the price of a Google Stock would move according to its chart patterns? No, because you know that its price is moved by the forces of the market - supply and demand, not by the chart patterns. Then why would the prices of currencies move by their chart patterns? Simply because of lots of traders follow them? Most trading is done by the Banks and multinational corporations. Do we really believe they follow chart patterns?

 

[Enivid]

Please imagine 2 charts of today - 1h chart and 1.5h chart. Would they look the same? We simply arbitrary decided to divide the day into 24 hours. If we divided it in 16 hours, one hour would include 90 minutes. And then our 1h chart would look completely different. So, the patterns of which chart should you go by?

I won't argue whether H1 chart patterns are a good trading technique, but when you are considering the merits of H1 chart vs. M90 chart, please consider the number of traders and analysts that are looking at the former and the latter. What they see on an H1 chart will affect their trading decisions (and thus the market), what they don't see on the M90 chart won't affect anything.

Can you imagine that the price of a Google Stock would move according to its chart patterns? No, because you know that its price is moved by the forces of the market - supply and demand, not by the chart patterns. Then why would the prices of currencies move by their chart patterns? Simply because of lots of traders follow them? Most trading is done by the Banks and multinational corporations. Do we really believe they follow chart patterns?

I don't think that there are chart pattern traders who would deny that stocks (and other instruments, including currencies) move by market forces. However, all stocks are traded by humans (even when they are traded by algos, those are controlled by humans). And humans consider past price levels when thinking about future price levels. The idea is that chart patterns work not because they are some magical writings on the chart, the idea is that they are result of certain buyer/seller behavioral traits that lead with a higher probability to certain outcomes.

 

[Arya Stark]

I won't argue whether H1 chart patterns are a good trading technique, but when you are considering the merits of H1 chart vs. M90 chart, please consider the number of traders and analysts that are looking at the former and the latter. What they see on an H1 chart will affect their trading decisions (and thus the market), what they don't see on the M90 chart won't affect anything.

I don't think that there are chart pattern traders who would deny that stocks (and other instruments, including currencies) move by market forces. However, all stocks are traded by humans (even when they are traded by algos, those are controlled by humans). And humans consider past price levels when thinking about future price levels. The idea is that chart patterns work not because they are some magical writings on the chart, the idea is that they are result of certain buyer/seller behavioral traits that lead with a higher probability to certain outcomes.

You are basically talking about what is known as self-fulfilling prophecy. I touched on this topic in the last two questions of the 2nd reason: "Simply because of lots of traders follow them? Most trading is done by the Banks and multinational corporations. Do we really believe they follow chart patterns?"
Since most trading is done by banks and large corps, the question is whether they also follow chart patterns. If they do, then the self-fulfilling prophecy might work. If they don't, then chart patterns can't work, because retail traders are a tiny percent of the capital involved in the forex market. I believe they don't. I don't see a reason why would they. And I have never seen a profitable "price action" trader. Or maybe some of those who call themselves technical traders are actually based on chart patterns? Idk...

 

[Enivid]

You are basically talking about what is known as self-fulfilling prophecy. I touched on this topic in the last two questions of the 2nd reason: "Simply because of lots of traders follow them? Most trading is done by the Banks and multinational corporations. Do we really believe they follow chart patterns?"
Since most trading is done by banks and large corps, the question is whether they also follow chart patterns. If they do, then the self-fulfilling prophecy might work. If they don't, then chart patterns can't work, because retail traders are a tiny percent of the capital involved in the forex market. I believe they don't. I don't see a reason why would they. And I have never seen a profitable "price action" trader. Or maybe some of those who call themselves technical traders are actually based on chart patterns? Idk...

They don't necessarily have to follow chart patterns for those to work. An ascending triangle is supposed to work because it reflects behavioral patterns of traders in response to a rising price with an established previous maximum, not because other traders see this ascending triangle and decide to trade it.

 

[Zerologic]

Chart patterns may not always work, but when traders accumulate more focus on one chart pattern, it could affect supply and demand.

 

[rmufti68]

There might be some patterns which can be traded however we need to get one or more confirmation before taking any trades and using a stop loss is necessary.