I recently had a great discussion with some other traders about a patterns and trading. We happened to be on opposite sides which are my favorite and often the most educational discussions. That is one of the great things about the StockTwits community, different opinions, so don’t take it for granted or treat it with disrespect, please. One of the things mentioned were textbook patterns which were present at the time, but I was seeing something a little different in my analysis. The particular security doesn’t matter here, my point is to give a subtle warning about following textbook patterns too closely.
Textbook Patterns are what we are all taught when learning the necessary foundations of Technical Analysis. They give a good reference point for explanation; and give a picturesque view of the pattern and vision of the potential outcome. The only problem is about that time other traders come in and voice their opinions as well, and that can quickly morph or change the picture you are seeing and the vision of the potential outcome as well. This is a critical part to understand that textbooks aren’t great at reminding us…..Patterns morph into bigger patterns a lot! At the time, we have no idea which traders will be right, but our job is to put forth our best idea and make sure we have a specific trade plan to control risk in case our outcome is not the one Mr. Market is looking for today, this week or even this year depending on the size of the pattern. These patterns certainly do work a high percentage of the time, or they wouldn’t be textbook; but if too many eyes are on the same pattern often Mr Market sees it as too easy and takes a different route.
I strongly encourage learning and studying those textbooks as I have and feel it was worth every minute of my time; but once in the trenches, you have to be able to quickly recall that knowledge and mesh it with the reality you see in front of you. Unfortunately the textbook doesn’t have any more power over the markets than you do.
Good Luck! it is there for the making!