Still learning to analyse stocks so i would love to read your thoughts but I believe a symmetrical triangle is forming on the UK 100 index.
I will wait for price to drop back to 29.110 before buying this ETF for the best possible entry with expected return of around 13% or if price closes to signal breakout to the upside (although I don't expect this to happen just yet).
I dont claim to be an expert and am currently learning
You asked. Patterns are useful. Some traders use them to 'predict' what will happen next. When price moves their way they think their 'prediction' was right (and if it doesn't they say they were wrong, naturally). They daily time frame is a big one - and takes weeks or months to deliver rewards. While price is bouncing around you see equity swinging wildly (if you take a peek ever so often).
I tend to play smaller time frames and small trends. The other day I showed how a 3 min trend took 9 hours from beginning to end and could have delivered 489 points, with a 26x reward to risk ratio. Of course that was a unique example.
I've seen big and small patterns that give a probability in one direction fail miserably. I think a lot of traders put too much value in patterns these days. There is research done by Bullkowski (google it) on probabilities for various patterns in each direction. Much of that research was done well before the pandemic period. In the pandemic period I've seen a higher failure rate of all patterns. It matters not if I'm right or wrong about that. I'm just sharing my experience.
Markets change behaviour and so probability estimates may change. So if a particular pattern might have given a 65% north. Then in a pandemic period it might be 55%. That's what I mean. I haven't measured any of this statistically, so I can only give my experience of patterns failing more often.
Jhol01
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@Captain_Walker, Really interesting point and I totally see where you're coming from. Personally, I think i'm way too reliant on price action and chart patterns at the moment but i'm still figuring out how to perform good and proper fundamental analysis and then to use technical analysis like patterns as confirmation perhaps? You're right in that markets are highly variable and are prone to change in behaviour as time goes on, particularly in times of uncertainty like the current pandemic. Attitudes change, technology advances and markets respond to this. I've actually taken an online course in financial markets to try and better understand how things work (On coursera by Yale, I recommend). I think the pandemic has and will continue to be an interesting period where the markets will experience wild fluctuations. This in combination with the boom in retail traders, wall street bets and the general increasing exposure of finance in the public domain has and will continue to have a major role in the way markets behave and perform. Have a look at some of the work by Robert Shiller on behavioural finance- I think that now has a greater impact in the performance of markets than ever before and begs the question, how much can we rely on price action alone? What else do we need to do to continue on having an edge? Thanks for the name drop ill do some research, Not heard of their work before.
I suppose the question is, if the behaviour of markets is susceptible to change, how can we as investors and traders adapt to keep up?
Captain_Walker
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@Jhol01, Price action has also had its troubles. My expectations on price action also failed more often. I was of course relying on market behaviour pre-pandemic. So I decided 'This isn't working well'. I don't do courses anymore. I did a few years ago, and I came to a view that they were a waste of my time and money. I won't go into all of that here cuz somebody will tell me that 'I didn't follow the rules of the course etc'. Courses give information and knowledge. They rarely provide skill i.e. they may show you different ways of taking a chunk out the market but one thing no course has ever done is to deal with individual psychology (risk behaviour etc). I gave my story here: newtrader.club/2018/03/10/courses-horses-or-the-mind/ - of course it is not 'everybody's story'.
I've studies Shillers work. Excellent stuff.
How much can we rely on price action alone? Like none. I rely on no one thing in making my decisions.
What else do we need to do to continue having an edge? What's the edge? It is about demonstrating a sound expectancy ratio for most traders. I say most traders because expectancy ratios are difficult to calculate when doing true trend following (only about 20% of all traders) - but not everybody believes that.
If the behaviour of markets is susceptible to change, how can we as investors and traders adapt to keep up? Investors are very different to traders. Investors are in for the long haul and will withstand far wider fluctuations of price and track much bigger trends. Many of them hedge using a range of instruments (charts). Traders are tracking smaller price movements, and smaller trends (usually far smaller than a 4-hourly). Keeping up as a trader with changing market behaviours is not easy because it depends on which instruments in which sector. Market behaviour in the DXY for example is quite different to say an index like the DJI or the German DAX. Degrees of 'wildness' vary.
If you want to see totally mad volatility check exotic forex pairs such as GBPMXN, CADNOK, USDZAR and USDTRY.
The golden rule is 'control your losses'. It's so simple but so hard to do. Notice how many Tradingview posts talk about losses. They are in a minority. My posts nearly always do. Most traders want to punch the air about gains. Most traders - approx 90% actually lose money consistently. They're searching for the holy grail. They never find it. There is no holy grail - and no one road to the 'promised land'.
@Captain_Walker really interesting to read your personal experiences, thank you for sharing! You’ve given me a lot to research and think about there. I have a long way to go yet but I’m learning every day. Currently I’m trying to master my own psychology also. I’ve found this to be the hardest part of trading and is often my downfall.
Captain_Walker
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@Jhol01, Your on the right track 'grasshopper'. LOL.
I tend to play smaller time frames and small trends. The other day I showed how a 3 min trend took 9 hours from beginning to end and could have delivered 489 points, with a 26x reward to risk ratio. Of course that was a unique example.
I've seen big and small patterns that give a probability in one direction fail miserably. I think a lot of traders put too much value in patterns these days. There is research done by Bullkowski (google it) on probabilities for various patterns in each direction. Much of that research was done well before the pandemic period. In the pandemic period I've seen a higher failure rate of all patterns. It matters not if I'm right or wrong about that. I'm just sharing my experience.
Markets change behaviour and so probability estimates may change. So if a particular pattern might have given a 65% north. Then in a pandemic period it might be 55%. That's what I mean. I haven't measured any of this statistically, so I can only give my experience of patterns failing more often.