As chartists we like to go hard.  We like to chart endlessly looking for setups and basic technical patterns in search of our next money maker.  It seems so simple at first.  However, that’s not always the case.

One thing that is harder for newer chartists to figure out is that WE NEED CONTEXT to go along with our basic analysis.  This is true for any data set or the like.  However, unlike most data sets, psychological context is needed in charting.

We have to understand that although the chart patterns may look the same time and again, the opportunities are NOT.

Market Wisdom.com founder Ivaylo Ivanov refers to this as a structural market edge.  These edges are here, but they only work in a cyclical fashion.

Screen Shot 2017-04-20 at 5.18.14 PMOne rule of thumb is if many people are talking about a pattern in a widely followed asset, it probably won’t work.  It creates a certain sentiment about an asset that is ripe for the trade to go the other way.

If you want to apply pattern analysis it’s better to do it when less people are watching.  This includes:

  • When people become disinterested in markets (after a long period of choppy trades or a market crash)
  • When the crowd is afraid to act (during normal corrections and/or sharp declines)
  • Newer Issues
  • Stocks flying below the radar

A key to speculating in markets is understanding the cycles in sentiment and investor behavior.  In getting a better sense for the psychological makeup of the market, chartists are better equipped to use their tools at the right places and right times.

Trade ’em Well