Chart Patterns

[timsk]

I checked out P&F some time ago and every once in awhile I take another look. I'm in the middle of 7 decades and these ole brain cells just ain't able to decode that much any more.

Hi Penny Picks,
If you - or anyone else for that matter - are struggling with PnF, I recommend looking at Renko instead. Very similar to PnF in many ways, but a little easier to get one's head around and, IMO, just as good.
Tim.

 

[Penny Picks]

What does qualification mean? Not heard of this one before.

My knowledge of P & F is extremely rusty by now as I have not touched it for more than 16 years. It was a syllabus requirement for my TA diploma back then.

I use the 123 patterns quite a lot. To qualify as a trade-able pattern there is a litmus test that must be passed.

1. Bottom or Top of a trend
2. Three indicators MUST show a divergence from price
3. Indicators I use
4. 1. RSI
5. 2. Stochastics
6. 3. MACD
7. The combination of #1 & #2 RSI/Stochastic works a little better than the 2 separate.

There are a few others that work to show a divergence to price but these are pretty standard.

The 'TREND' must be a considered. I've tried the 2 basic patterns

1. 123 TOP / BOTTOM
2. BULL ? BEAR FLAGS

in the middle of a trend and got clobbered.

I'm a 'Small Cap / Penny' stock trader and my 1st move is to do a trend search, Monthly/Weekly/Daily.

When the trends end let the games begin.

One last point. I never 'SHORT' a stock. I'm lousy at that.

 

[f2calv]

Won’t you only see that if the “reversal degree” is tight enough to pick up the 10 bounce backs and print the PF reversals? Otherwise the pullbacks will leave PF unmoved and you will similarly have no idea of the 10 efforts.

It's both the box-size AND the reversal amount combined that give the P&F plot it's desired precision level. So yes if you're looking at a 10x2 plot (with my below test data) you won't see much. With P&F you should hone the box size & reversal amount to match your trading style, i.e. lower numbers for scalping, higher numbers for swing trading/trend following.

Using a very rudimentary scalping example, i.e. the DAX banging up underneath resistance at 13,000.

Lets assume the start time is 13:00 until 13:15 (i.e. 15 minutes duration), here are some (fabricated) "ticks";

12,990 - OPEN
12,991
12,995
12,994
12,998
13,000 - 1st hit on 13k
12,996
12,995
12,998
12,993
12,995
13,000 - 2nd hit on 13k
13,001 - HIGH
12,997
12,996
12,999
13,000 - 3rd hit on 13k
12,995
12,993
12,989 - LOW
12,991
12,995 - CLOSE

Your 5-minute OHLC candlestick will be as follows;

OPEN - 12,990
HIGH - 13,001
LOW - 12,989
CLOSE - 12,995

A candlestick would show an upper wick of 6 points, with a green body 5 points in height, and a lower wick of 6 points.

However a 1x2 or a 2x2 P&F plot would show the price hitting and reversing on the 13,000 price level 3 times - on the 4th attempt you would be able to attempt a scalp short with a R/R of 2.

Sorry a picture is worth a thousand words but I'm lacking in artistic skill/time
If I can find the time I'll post some candlestick vs. P&F comparison charts, in a separate thread.

Note;
- Obviously in 15-minutes you'd actually have thousands upon thousands of ticks.
- Renko charts are basically identical to P&F charts but with a hard-coded reversal of 1.
- My maths might be out in above example by a point here and there but I hope you should get the idea?

 

[barjon]

It's both the box-size AND the reversal amount combined that give the P&F plot it's desired precision level. So yes if you're looking at a 10x2 plot (with my below test data) you won't see much. With P&F you should hone the box size & reversal amount to match your trading style, i.e. lower numbers for scalping, higher numbers for swing trading/trend following.

Using a very rudimentary scalping example, i.e. the DAX banging up underneath resistance at 13,000.

Lets assume the start time is 13:00 until 13:15 (i.e. 15 minutes duration), here are some (fabricated) "ticks";

12,990 - OPEN
12,991
12,995
12,994
12,998
13,000 - 1st hit on 13k
12,996
12,995
12,998
12,993
12,995
13,000 - 2nd hit on 13k
13,001 - HIGH
12,997
12,996
12,999
13,000 - 3rd hit on 13k
12,995
12,993
12,989 - LOW
12,991
12,995 - CLOSE

Your 5-minute OHLC candlestick will be as follows;

OPEN - 12,990
HIGH - 13,001
LOW - 12,989
CLOSE - 12,995

A candlestick would show an upper wick of 6 points, with a green body 5 points in height, and a lower wick of 6 points.

However a 1x2 or a 2x2 P&F plot would show the price hitting and reversing on the 13,000 price level 3 times - on the 4th attempt you would be able to attempt a scalp short with a R/R of 2.

Sorry a picture is worth a thousand words but I'm lacking in artistic skill/time
If I can find the time I'll post some candlestick vs. P&F comparison charts, in a separate thread.

Note;
- Obviously in 15-minutes you'd actually have thousands upon thousands of ticks.
- Renko charts are basically identical to P&F charts but with a hard-coded reversal of 1.
- My maths might be out in above example by a point here and there but I hope you should get the idea?

Aye, you’d finish up with a very busy chart

Used PF for many years in the days when you had to draw your own charts. PF was easiest and used less graph paper. The advantage of having a pencil in your hand was that you got a real hands on feel for what was happening.

 

[timsk]

. . . Used PF for many years in the days when you had to draw your own charts. PF was easiest and used less graph paper. The advantage of having a pencil in your hand was that you got a real hands on feel for what was happening.

Listen up folks - here speaks a true market veteran who understands a thing or two about how to trade . . .
C'mon, the man actually used a pencil to plot his own charts - how cool is that - kudos or what!

 

[f2calv]

Aye, you’d finish up with a very busy chart

Used PF for many years in the days when you had to draw your own charts. PF was easiest and used less graph paper. The advantage of having a pencil in your hand was that you got a real hands on feel for what was happening.

Yes a very busy plot if the price action carried on like that, but the beauty of p&f as you obviously know is that if the price sticks in a tight range for the rest of the day you get no new p&f columns at all - but a candlestick chart will plot a new candle every 15minutes without fail which would be just noise!

As Tim says kudos for hand drawing those charts

...for my part I have coded my own p&f charting library which can process nearing a million ticks per second so thankfully no pencil and paper needed here

Sent from my Nexus 6P using Tapatalk

 

[timsk]

. . . As Tim says kudos for hand drawing those charts.

. . . and kudos to you too f2calv for building your own bespoke charting software.

As a matter of interest, as you clearly have an excellent understanding about how PnF charts are built, which of the free platforms available through the mainstream spread betting and CFD brokers would you recommend for those wishing to use PnF? To qualify, I assume none of them - hence you built your own. Nonetheless, which in your opinion is the best of (a bad) bunch?
Thanks,
Tim.

 

[f2calv]

. . . and kudos to you too f2calv for building your own bespoke charting software.

As a matter of interest, as you clearly have an excellent understanding about how PnF charts are built, which of the free platforms available through the mainstream spread betting and CFD brokers would you recommend for those wishing to use PnF? To qualify, I assume none of them - hence you built your own. Nonetheless, which in your opinion is the best of (a bad) bunch?
Thanks,
Tim.

Cheers! I wrote my own because no other software (that I could see at the time, and this was pretty much 2 years ago that I started) would handle real-time tick data (and according to du Plessis tick data and p&f are the bees knees when used together).

I have also (maybe to my detriment) avoided looking at other p&f software since I started, aside from of course a few of the charts dentist & moneylender have posted in the p&f thread - mainly because I didn't want my software to be influenced by any potential 'competition' should I ever try to monetise it.

Having said that I'm not oblivious to "the competition" in the TA charting world and earlier this evening I did a quick Google to try and find a suitable comparison between p&f and renko charts and www.tradingview.com p&f charts looked pretty swish for those wishing to plot EOD data...

Sent from my Nexus 6P using Tapatalk

 

[jjames69]

toppy looking chart here. possible h & s top. the sector index(gray line) is leading the way down, earnings date on february 5th.

 

[timsk]

. . . I have also (maybe to my detriment) avoided looking at other p&f software since I started, aside from of course a few of the charts dentist & moneylender have posted in the p&f thread - mainly because I didn't want my software to be influenced by any potential 'competition' should I ever try to monetise it. . .

Hi f2calv,
In the event that you decide to go down this path, I recommend coding it for MT4. There's really not much out there: Moneylender's charts are about the best there is and they're far from ideal. If you get it right and don't take the pi$$ by charging too much, you could have traders the world over beating a path to your door.

By way of example, this chap does a good job for Renko on various platforms, including MT4, but he doesn't offer PnF. A good website, fair price and good service/support: AZ-iVEST.
Tim.

 

[neil]

Hi f2calv,
In the event that you decide to go down this path, I recommend coding it for MT4. There's really not much out there: Moneylender's charts are about the best there is and they're far from ideal. If you get it right and don't take the pi$$ by charging too much, you could have traders the world over beating a path to your door.

By way of example, this chap does a good job for Renko on various platforms, including MT4, but he doesn't offer PnF. A good website, fair price and good service/support: AZ-iVEST.
Tim.

Tim -another one for you.

https://ovo.cz/

 

[Penny Picks]

Tim -another one for you.

https://ovo.cz/

The Indicators saying "Indicators show the Past" is true. But, they will also play a part in the "Prediction" of a possible price movement.

ie: An Indicator, an MACD for instance, in Price in a "Down Trend" will usually stay negative. However, when the downtrend weakens the MACD will, most of the time, start to "Diverge" from the price. That's the "Predictive" nature of a lot of indicators.

 

[jjames69]

The Indicators saying "Indicators show the Past" is true. But, they will also play a part in the "Prediction" of a possible price movement.

ie: An Indicator, an MACD for instance, in Price in a "Down Trend" will usually stay negative. However, when the downtrend weakens the MACD will, most of the time, start to "Diverge" from the price. That's the "Predictive" nature of a lot of indicators.

i've always felt momentum indicators follow price, and can be lagging. a better indicator showing technical strength would be one comprised of tick volume. sometimes, on index etf's, i use tick volume with moving averages attached to make a mcclellan indicator.

 

[jjames69]

looking like bombs away in the nasdaq.

 

[jjames69]

toppy looking chart here. possible h & s top. the sector index(gray line) is leading the way down, earnings date on february 5th.

triggered, target met, and profits taken.

 

[The Hawk]

rather than looking for chart patterns, it pays to understand the market structure that leads to these patterns.
Chart patterns are categorizing market structure into an idealized limited forms, and market action is far more than being ideal, which means messing more opportunities.
My humble advice for you is to understand how congestion phases begin, form, and end, and how breakouts/breakdowns occur, continue or fail.

 

[Joules MM1]

Aye, long as you cater properly for the pattern failures (of which there are many - particularly in real time) you’re good to go.

barjon !

great post ....mostly coz it's circular

patterns are secondary, they are merely ideas of confidence and permission to do something.....but really execution levels (where bars open and close, where youre forced to make or enforced in making a transaction) are the tell ....execution levels dictate what youre really doing and the pattern you think youre basing your trade on is a distant idea in reality

 

[Quantower]

Here is a good pattern that I partially used in my trading: http://qusma.com/2012/11/06/closing...e-days-range-and-equity-index-mean-reversion/

I guess you find it usefull

 

[tomorton]

Interesting reading, thanks Quantower. I will definitely explore the QSMA site a bit more later.

Use of the location of the day's Close for a short-term entry is also covered in Street Smarts by Raschke & Connors but I found it one of the most confusing chapters in their book. They say that days that closed in the top 10 percent of their range for the day had a 80-90% chance of follow-through the next morning but actually closed higher/lower only 50% of the time. This implies that there is a good chance of a midday reversal.

But they then describe their 80-20 strategy which requires that the market opens in the lower 20% of its daily range and closed in the upper 80% of its daily range, in which case a sell setup would be indicated for the next day (vice versa for buys).

 

[hatemypips]

What are the easiest chart patterns available for freshmen in tech analysis. Been on fundamental side for a long time, now want to try myself in drawing lines correctly.