I received an email from Garry Stern that I think nicely summarizes the problems with classical chart patterns. I think that all traders who use classical chart patterns should pay attention to what Garry has to say about this subject.
Garry Stern offers market analysis that incorporates a variety of data points, including information obtained from charts. His work is well documented and his interpretations are based upon data. In my opinion this is how traders should operate, in principle, when analyzing price action. Relying solely on chart patterns often formed on multi-year timeframes is not a good idea nowadays.
I read your excellent piece on classical bar charting and could not agree more with your conclusion. Over the course of many years, the value of classical bar charting has greatly dissipated. With markets now trading almost 24 hours, oftentimes in thin market conditions, classic chart patterns have become distorted. Now everyone can be an expert in classic bar charting because of pattern recognition software except for the high frequency guys who do their best to mangle the patterns.
The reason that classic bar charting worked in the early days was that no one used it. An original thinker like Richard Schabacker could find gold in chart patterns because no one understood them or their value. It is amazing that current practitioners of classical bar charting don’t understand the value of their craft has diminished because everyone sees and understands the same patterns. As a result, their impact has become negligible, with some exceptions.
Keep up your good work on this subject Michael. Hopefully you will spare many new entrants into the investment field the pain of needless losses.
Below are some of my post where I raise concerns about the effectiveness of classical chart analysis: