Is the chartist the wise augur of the markets or is he the fool seeing everything were nothing is and vice versa? It depends on the chart formation he is looking for. If it is a trend instead of, e.g., a double bottom, than he is on the right trail. So and so many chart patterns are worth nothing. They simply have too high a probability for occurring by chance. The trend pattern is different.
But even trend is not equal to trend. The more swingy a trend gets and the more traders are whipsawed by it, the bigger is the danger that a stop gets executed and the trade results in a loss.
Interestingly, a trend isn’t anymore a trend if the swings in it are too large. Legions of chart wizards are drawing trend lines under formations that are mostly random and barely anything else. In such a case it doesn’t help that there is a straight virtual line connecting the down legs in an uptrend.
The lesson is, a trend has to be smooth. If a chart formation has a trend component – you can draw the trend line – but is cluttered with swings, than its trend character has been whipsawed and only random saw dust is left.
Such a trend is useless for pure trend trading. There may be a chance to combine trend trading and swing trading, so that the swingy curves give entry and exit points but this is probably more swing trading than exploiting a trend.
If this system is used for trend trading, the big problem lies in the fact that you often will miss the next upmove, which is the current one, while you are waiting for a retracement. Instead of a retracement you could also wait for anything else, like a specific pattern or formation in the chart or any other constellation of anything that is viewed as being favorable. Earnings data come to mind here.
Exactly this is the danger for all attempts to combine trading chart patterns with trading trends. A trend that is “enriched” with a specific pattern is broken or paused at the moment the pattern occurs. Again the problem is waiting for a chart pattern, which causes the best trends to move on – without you.
Waiting for a chart formation or perhaps even an entry setup is effectively filtering out the best trend chances.
