Short – term Price Patterns

Short – term Price Patterns

A short-term price pattern is an analysis of recent price action in terms of:

1.      Previous closes;

2.      Previous opens;

3.      Range size; and

4.      Moves off the open.

Price patterns attempt to qualify market action so as to test for a significant directional movement. Price patterns allow us to take large amounts of information about the market and condense it into workable units. Market action can thus be tested. The tendencies found within the testing period can then be used as a partial basis for taking real action in the market.

Many people reject the notion that market activity is repeatable or ordered, because they feel that patterns occur purely randomly. They believe that present trading conditions are much too unlike anything that happened in the past to make any type of valid comparison. The market has no memory and every situation is unique. There is a fallacy in this way of thinking. Every day and every market situation is indeed unique, however, there are common patterns which may be generalised, just as every person is unique, however, and generalities exist for all human. Everyone may not have the same likes and dislikes, but everyone has likes and dislikes.

Just like everyone has unique brain powers, however, we generalise them as A, A+ & B, B+ etc.
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All right, coming back to price patterns again, price patterns evolve through the engine of greed and fear. The crowd’s emotions act in a predictable manner and are captured as chart patterns. This herd behaviour translates into directional movement that, in turn, translates into common, repeated and predictable elements.
Price patterns provide a complete, powerful method to locate opportunity regardless of market conditions. Since markets can not move upward to infinity, or downward below zero, well-marked patterns evolve within each time frame. An intelligent trader needs to recognize the various separate stages of the market’s evolution, learn the well-marked pattern cycle, and develop and discover the hidden language of price patterns.

There is no pattern, relationship, or indicator that will always turn out right. The best we can do is to aim at a high degree of accuracy as a limit. All patterns will have their losing episodes. When these come about, the disciplined trader will take his or her loss in stride and exit the trade. There is, to my mind, no other way to trade if you want to be successful over the long term.

And always remember Murphy’s Law: “Anything that can go wrong will go wrong” 

Our job is to make sure that we get out of the best under both circumstances and come out as a Winner!