Cycles, Volatility, And Chart Formations by Daniel L. Chesler, CTA, CMT
Understanding the building blocks of classical chart patterns
can improve your analysis and trading results. Here’s how.
A nyone who has studied or traded with classical
chart patterns for several years knows the
unmistakable feeling when a good pattern develops.
The better patterns tend to stand out
from the marginal ones, regardless of their
shape or classification. This led me to realize that it was the similarities between chart patterns that were
important, rather than the differences as defined by pattern
names such as head-and-shoulders, triangle, and so on. It became apparent that a model was needed to bridge the gap
between the minutiae of classical chart pattern definitions
and the common features shared by chart patterns in general.
Specifically, the model’s goals are to:
• Offset the lack of classical chart pattern specificity by
providing a less subjective though still not entirely
fixed criterion for identifying patterns.
• Serve as a notional benchmark for distinguishing valid
chart pattern behavior from other types of market
behavior, such as trending and exhaustion behavior.
• Minimize the risk of an implied directional bias by
excluding the use of traditional “bull,” “bear,” or pattern