May 252009

Do Chart Patterns Forecast the Future? A Look at an Overloooked Market Cycle.

Posted by Barry Burns in Cycles, Day Trading, Forex, Futures, Investing, Money Management, Podcast, Psychology, Stocks, Technical Analysis tags: chart pattern, market cycles, stock market research, Technical Analysis, Trading Psychology

Welcome back. Enjoy this latest article and then scroll down and please leave your comments/reactions at the bottom of this post. Thanks for visiting again!



One of the most popular trading methods is to look for Chart Patterns. In fact, some people claim they trade these alone, without the use of any indicators.

But amateurs know these same chart patterns (head and shoulders, double tops, double bottoms, triangles, wedges, etc.) and cannot make money with them.

So why don’t they work?

Or do they work … but only sometimes?

Today’s post will cover a cycle I’ve never heard anyone else ever talk about before:

Order/Chaos Cycles.

Whether you trade chart pattens, or indicators, or some combination of both, the cycle between order and chaos will have dramatic effects on your profit/loss column. Yet most people aren’t even aware it exists.

Well, today you will get that awareness!

I’ve recorded this post in Podcast format (audio only). You can download it to your mp3 device or listen to it right here on the web site.

Thanks everyone for the great feedback on this series on Market Cycles. If you haven’t been following it, you can access the previous posts in the series below. It’s been fun doing it, so I think I’ll do more series like this in the future.

Listen to the Podcast and then please leave your comments below. There’s some things in this one that are going to be pretty controversial, but feel free to express your feelings even if you disagree with me. That’s what makes it fun!

The Podcast is below. Be patient, it’s almost 30 minutes long so it may take a long time to buffer before it starts playing. If it continues to buffer too long, click on the “Download” link below it (left click to play on your computer, right click to download the file to your computer).

 Chart Patterns Forecast the Future? A Look at an Overloooked Market Cycle.: Play Now | Play in Popup | Download
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This entry was posted on Monday, May 25th, 2009 at 4:39 pm and is filed under Cycles, Day Trading, Forex, Futures, Investing, Money Management, Podcast, Psychology, Stocks, Technical Analysis. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

26 Responses to “Do Chart Patterns Forecast the Future? A Look at an Overloooked Market Cycle.”

  1. Robert Rogers Says:

    May 25th, 2009 at 7:15 pm

    Barry, the 30 min. audio you just did on low vs. high probability trades (amateur traders vs. professional traders)is excellent. Yes, I did not realize the importance of being more patient and waiting for the high probability trades. Yes, I have made money trading my ‘scalp’ method, only to ‘be in the grove’ and lose it all by the end of the day. Thanks for being a wonderful mentor. I am paper trading your momentum methods at this time ( 6 weeks now). I am still learning! Your courses are excellent with many details that I must read and reread after paper trading to really learn their significance in my trading. I am working hard to be successful. Also, thanks for the many bonuses, in addition to your Foundation I and II Courses and the accompanying teaching videos. You are a very caring teacher and mentor. Thank you for sharing your talents in trading, and then, in teaching your methods. Best wishes, Robert Rogers

  2. Peter Says:

    May 25th, 2009 at 7:21 pm

    Great audio on chaos versus orderly markets. Knowing when NOT to trade is certainly as, or perhaps, even more important than knowing WHEN to trade.

  3. don nelson Says:

    May 25th, 2009 at 7:31 pm

    Doctor B. Ever read Heinlien? I don’t remember what book it was in, but his tell “me three times” theory has always stuck with me. My take on this blog is sorta like this: there is order underlying the chaos, patience creates the order, the pros have patience, therefore, the pros create the order in the markets and the amateurs create the chaos. Sometimes the older I get, it takes hearing something three times to get it and sometimes not. Thanks for your great teaching style! Don N.

  4. Larry Says:

    May 25th, 2009 at 7:57 pm

    Excellent podcast. Thank you again for your
    desire and help to enable all of us to improve
    our trading.

  5. George Hann Says:

    May 25th, 2009 at 9:39 pm

    Hi Barry, really great to listen to. Having once, many years ago invested in a “Gann” based learning program called Safety in the market. I eventually gave up on the ‘prediction game’ and came to realise that i really did not beleive in any kind of crystal ball trading. Perhaps you may see merit in reversing “Chaos to Order” lol.

  6. Albert Says:

    May 25th, 2009 at 10:48 pm

    Very interesting podcast! I think that you should provide an explanation about the time frame, if you scalp you obviously will have more trades than an intraday trader that takes a few trades during the day…

    It would be great if you could do some series on money management, risk/reward ratios and accuracy rate and how they all fit together…and also demisfy the big myth that the higher the accuraccy rate the better…

    Thank you for reading my comment and acting on it!

    Regards.

  7. James Says:

    May 26th, 2009 at 2:05 am

    Hi Dr Barry,
    I am very new to trading Forex, or anything for that matter so I listen and watch with great anticipation of catching on and making sense of all the training videos and pod casts. Please excuse my ignorance in not following to the T when I ask a question for the first time. You mentioned entering into a trade at a cycle low, how does one predict a cycle low in a time of high probability, would the chance to have taken a trade been missed already when waiting to see the physical evidence or would there be a deminishing trend of high high’s and low low’s.

    Thanks for your efforts and desire to teach the needing, obviously I am one of those cause I at this stage I dont get it.

    Regards and sincere thanks,
    James

  8. Marc Says:

    May 26th, 2009 at 3:25 am

    Great podcast, Barry. Very enlightening. Nice to know what professional traders do and don’t do.

  9. morris rendahl Says:

    May 26th, 2009 at 3:52 am

    could not download

  10. Bill Says:

    May 26th, 2009 at 7:21 am

    Barry,

    Thank you for another insightful commentary on market chaos vs order. I found it to be right on although I would like to better understand how this thinking fits into the life of a scalper. I see many scalp trades in a day and take many of them successfully. However, I will humbly admit my profit level is not where I want it to be. Thanks for your courses, insight and desire to make this dream come true for many of us learning from you.

  11. Donato Says:

    May 26th, 2009 at 8:06 am

    One of the “problems” in the markets right now for traders is that due to the recent huge loss of value, (generally speaking) the price of most stocks is pushing up against resistance of one sort or another. So without this Energy present, there may be a lot of opportunity lost.

    And just for the record, due to the minor trend up, I do have small long positions.

  12. Leonard Clemens Says:

    May 26th, 2009 at 9:42 am

    Great Podcast,Really interesting info,KEEP UP THE GOOD WORK.

  13. Barry Burns Says:

    May 26th, 2009 at 11:50 am

    Hi James,

    Not trying to be a salesman here, but teaching how to find cycle highs/lows is beyond the scope of a brief reply to a comment. I spend a lot of time in my Foundations Course #1 teaching that exact thing.

    All my best,

    Barry

  14. Carol Collins Says:

    May 26th, 2009 at 7:18 pm

    Dr. Burns, Thank you for very valuable information in this podcast. You make it believable that I can trade like a professional. I will get there.

    Much of the information you impart is not “new,” but you always seem to go a little deeper than other coaches, and the way you explain things makes everything fit together. After taking your courses and taking advantage of your free stuff, I am finally learning to be an unemotional, objective trader–at least most of the time. Thank you.

  15. Mark Says:

    May 26th, 2009 at 9:17 pm

    First you have to find the high probability trades, then you have to be patient enough to wait for them. Both are very difficult to master.

  16. Mario Says:

    May 29th, 2009 at 9:02 pm

    Hi Barry, I like your information and style , I can’t wait for your next treat. Many Kind Regards , Mario

  17. Al Says:

    May 31st, 2009 at 7:28 am

    Thanks once again! Clear and relevant insight – kind of like, ‘step back and see the bigger picture’. Fine tune your indicators accordingly and sync with the 5 energies. Hunt like a big cat and the market will come to you – rather then you chase the market all over the place, and end up either break-even, more likely down or at best with marginal gains and whacked out.

  18. Scott Haynie Says:

    June 6th, 2009 at 8:01 am

    Waiting for it to buffer but I wanted to say that this is a concept I’ve been thinking about.

    I know my trading has fluxuated from perfectly intune with the market in that All trades go bad in groups when the broader market fails to followthrough with my expectations, and all trades go well when them arket performs as expected, to a random smattering of good and bad trades (I love this, breaking up the bad trades) reguardless of broader market action. I’ve looked at dozzens of aproaches to the market. I’ve wasted months thinking reading conceptualizing, inventing indicator concepts that already existed.

    It wasn’t untill I actually re-enrolled in school and changed my major to economics that I began to get a sense of how and WHY markets fluxuate and change in their dynamics. It kind of ties to the concept of the invisible hand. An oportunity will eventualy be flooded by those trying to exploit it in ANY market and the end result is nonproffitability (economic profit is defined differently from accounting profit which is what we are concerned with but here they are connected I believe).

    I recently closed my account and used the money to put down on a house in a great neighborhood. I NEVER found a method that is high probability in a bear market… even selling short. NO indicator combination, no setup or combination of those. This is after hours backtesting manually and digitaly. This would seem to echo the work of Bulkowski(spelling) who suggests that bear markets aren’t worth trading, even SHORT!

    I know some of the best traders in history, Livermore included often spent more time out of the market than in it. Livermore while one of the few rare accomoplished bears still often spent months at a time on long fishign trips and out of the market. There is a lesson there.

    I finaly realized that the reason that NO methods I backtested seemed to get above 50% probability is fora few reasons (I believe):

    1. Diversity – - – YUP over diversity. It lowever the probability if being there for the big move if you are constantly scanning the market for your oporunities no matter how you define it. It dilutes your probabilities in my opinion. That means expensive scannign and searching software is not needed.

    2. Like a roulette wheel there is no 50% odds ANYWHERE on the table. Yup. Think about it, a basic color bet is red or black……. or way up in the corner is the house color GREEN.

    One thing I clearly noticed while using my scaning software and building all the complicated scans to try to track the market in mulitple ways was that there are some real parallels to herds there. In tracking ALL stocks and catagorizing them by movement types I began to view the market as a naturlaist would see a flock of birds or school of fish or swarm of bees. They all move togeather but in unpredictable directions and ways. It’s really chaos INSIDE the group but there is a collective movement. “Butterfly Economics” speaks to this a bit. It boils down to the ability for a person to affect another persons decision and thus the market (any market).

    That dose not mean I gave up on trading. But next time I’ll be breaking all the rules.
    1. I’m not trying to beat the market. Just plug away and make money. It will be boring as hell next time through.
    2. There is no way or reason to monitor all the little stocks and be knoladgeable about the market in general. That is pride and wanting to show off and have great conversations with people. From no on I have no idea what is a good company. I will pick 1-3 issues and mary them.
    That means I can find them on Finviz, probably ETF’s to avoid negative gaps (that unfortunately also avoids positive gaps) and buy all short term counter trend reversals inline with the longer trend and go “all in”, leveraging as it goes in my favor and dump if it moves against me by more than the lowest low of 3 bars. I’ll catch all the clean runs and be leveraged through the whazoo and have ligher positions with tight stops on the fake outs and changes in volitility that stop out prematurely.

    Most of my strategies when tested on ANY issue one at a time are nicely proffitably over time. BUT testing them in large baskets kills the odds. Funny huh?

    Starting to paper trade this live now.

  19. James Says:

    June 6th, 2009 at 9:41 am

    Very good Barry, as usual. This is a huge key to not overtrading.
    Trade when the signals are “readable” and absolutley clear. Every
    trade is a unique event, however the setups are repeatable. The expectation/outcomes are probabilistic. Trying to force a trade when the market is unreadable is where most people lose money.
    Amateurs completely overtrade.

    Look for patterns and validations of patterns. If its not there don’t trade. There are days I can get 15 signals and all work. Then not get a good pattern and validation for two days. Forcing is a great way to lose money.

  20. Michael Says:

    July 4th, 2009 at 9:55 am

    Just watched/listened to your whole blog series on “Cycles in the Market”.It really adds to and reinforces everything l have learnt from you in your two Foundation Courses.In fact, all the good stuff l pick up in FX webinars and books etc is ALWAYS in harmony with your methodolgy. The best thing is,your teaching makes it so accessible and clear, and the insights/methods which are uniquely yours are always of such high value.l hope you continue to enjoy teaching because l intend to keep learning from you and implementing your methods!I’m not American but l am driven to use the “A” work to describe you work, it truly is “Awesome”!Thank you and rock on!

  21. Geoffrey Salvage Says:

    August 2nd, 2009 at 2:43 pm

    After I had won a lot of money with the City Index Demo Account, I tried the Live Account.
    I treated it as if I were in an amusement arcade.
    Loadsamoney…at least to start with. This became less and less as I soon realised I was just throwing my money away. ‘For Amusement Only’ certainly applied to me…but low or no profit.
    I now pace myself, am more cautious, and from this week onwards I shall be listening to Barry Burns.
    Success here I come! Good luck everybody.

  22. Peter Says:

    September 8th, 2009 at 6:42 am

    I thought this audio was useless and a waste of time. Did not learn anything.

  23. Lee Says:

    September 8th, 2009 at 6:45 pm

    Great podcast on cycle timing, So True,there been days that I traded way toooo much just to get back even (paying out many trade commission)and there was days I traded couple times and made a good profit not overtrade. So, I think You are right on the money about cycle trading. Thanks, second time I have log on your site GREAT WORK!!!
    Lee

  24. Geoffrey Irwin Says:

    October 4th, 2009 at 7:55 am

    Hi Dr Barry
    One the most informative podcasts I have listened to in a long time.
    I have just moved out of the cycle of overtrading and am haveing a little success. I may watch and wait for over three hours in Forex before the high probability trade fits my trading plan while I listen to all the seeminly experts are trading like crazy in the chat rooms. There have been days when no trade appears but when it does then my profit has more than doubled a week of overtrading. One week I only had two trades at the same time in correlation. This was 160 pip move, but my inexperience only took 80. This is intraday. Don’t trust day to day with the sometimes violent news moves.
    Namaste Geoffrey

  25. Tewolde Says:

    October 7th, 2009 at 12:43 pm

    Barry,
    All I could understand was the reaction of traders in the market. other than that, it was just crazy there.

  26. Geoffrey Salvage Says:

    January 23rd, 2010 at 4:43 pm

    Say no more…

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