Trading Traditional Pattern

This is an article contribution from Richard Incorvia covering Trading Traditional Pattern. Enjoy.

Trading is about following the flow of probability. Within the context of a trading methodology that means allowing the market to show you multiple reasons to pick a trade. Some people will try and find one indicator that will give them all the signals they need. They quickly will realize that this won't work. One thing that will also never work for you is when you go to the other extreme and use many indicators. Some people use 20+. Some people try do this with patterns also. "Whenever I see a head and shoulders, I am going to trade it." These individuals will quickly will realize that you won't be able to tell when you are going to be right and when you are going to be wrong.

Once again, trading is about following the flow of probability. The trick is knowing how this probability is going to look. I have something within my trading methodology which I've named an Erosion Pattern. If the market is coming into an area of resistance and is going to hold it and reverse you need to be prepared for whatever might happen. If that creates a head and shoulders pattern, a more traditional Elliot wave 2, a B wave, a pennant, a double top, so be it. That is expected. The important thing is to determine and know where, when, and how that would look so you can trade it effectively. Yeah you might be able to recognize an Elliot wave E regular flat or other flat patterns. But to me this is only part of the story. It is more important to recognize this as supporting evidence.

Let me give an example.

Let's say you are looking for a top at 1326.25. Some people might look for a particular pattern to identify that. I have a conformational method to determine whether or not this will be the high. Then I know the statistics that correlate time and price. That is corroborative evidence and now I know with a higher level of certainty whether or not this will be the high. I can lean on that sell. Sure enough the market drops down to 20 and comes back up. What has this just done? A pattern has developed and we may get an Elliot wave 3rd wave push down. I know if that now has changed the trend or not and what sort of magnitude of a drop that should occur.

It doesn't get any better then that. It is trading with a very high degree of knowledge which correlates to a very high degree of accuracy. If you can identify in addition to all these factors that there is what I call "time compression" going on and that big moves usually come from there. Now all the pieces of the puzzle are explained. How to pick the top. How to pick the formation of the top. It is all there.

I know all of you have probably gone to some course and had some man teach you something but it was never used or when you 'thought' you identified it, sometimes it worked and sometimes it didn't. This is what I mean when I mentor people and say, "you need to know the 'context' of the market." Its not relying on one individual thing. Don't rely on Elliot Wave counts, or head and shoulder patterns. You need to know all of the factors that will determine an edge of the market so that you can predetermine your risk.

In order to be successful you need an incredible depth of knowledge about the markets. Each and every part of a trading system is like an ingredient in a recipe. There can't be wasted time spent, wasted strategy, and no wasted energy. You need to work hard to do this. There is no magical formula or pattern you will learn someday that will unlock the market and all its profits for you. You need to truly analyze all aspects of the market. Then you'll have it. A true trading methodology that will allow you to be consistently correct. You will know how to act to the changing conditions of the market that you find yourself with. There is room for questions within trading but there is no room for doubt. You need to know what to do and how to trade effectively based on the current market conditions.

This article is contributed by Richard Incorvia of  http://www.falcondaytraders.com.  If you are keen to learn more about his trading method, you may visit the website and check out the mentoring program that is being offered.

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