Many times I enter discussions where people tend to bash pattern trading...
...saying that pattern trading is not actionable, that "most reversal patterns fail while most continuation patterns succeed", that "most diagonal patterns fail while most horizontal patterns work", that you can't derive direction from them.
My answer is always that direction is not derived from the pattern itself (that would be statistically based only), but instead is derived from both interior and exterior context. When searching for actionable setups, again, patterns and diagonals will mostly provide bias, signs such as exhaustion and trend shifts, while horizontal SR (Support & Resistance) levels will actually be the ones we'll be looking for actionable setups.
Here's a quick example of a Rising Wedge divided in three constantly smaller ranges showing a slowing down of the trend, where we can start seeing exhaustion by the constant failed breakouts of HORIZONTAL levels, and where one can derive potential direction bias from the first DIAGONAL trend break...
...potentially expecting now a cascade effect from smaller ranges down to the larger ranges, providing larger and larger expansion gaps ultimately running the Rising Wedge pattern target.
...saying that pattern trading is not actionable, that "most reversal patterns fail while most continuation patterns succeed", that "most diagonal patterns fail while most horizontal patterns work", that you can't derive direction from them.
My answer is always that direction is not derived from the pattern itself (that would be statistically based only), but instead is derived from both interior and exterior context. When searching for actionable setups, again, patterns and diagonals will mostly provide bias, signs such as exhaustion and trend shifts, while horizontal SR (Support & Resistance) levels will actually be the ones we'll be looking for actionable setups.
Here's a quick example of a Rising Wedge divided in three constantly smaller ranges showing a slowing down of the trend, where we can start seeing exhaustion by the constant failed breakouts of HORIZONTAL levels, and where one can derive potential direction bias from the first DIAGONAL trend break...
...potentially expecting now a cascade effect from smaller ranges down to the larger ranges, providing larger and larger expansion gaps ultimately running the Rising Wedge pattern target.