Profiting with Chart Patterns book

Goals of Chart Pattern Analysis
In chart pattern analysis, you want to do these things:
•
Identify the most predictable patterns possible
—There have been many books 
written on Technical Analysis and pattern recognition, including 
Technical 
Analysis of Stock Trends
by Edwards and McGee. This book is full of chart 
pattern examples. A lot of patterns that are written about are just not very 
predictive. We want to isolate those patterns that really give us an edge in the 
market.
•
Define a set of rules that result in winning trades
—There are specific rules that 
you can use that will help you react to and trade with the pattern as it forms from 
its base and culminates in the move that it started with. You will see that we have 
identified concise rules throughout this book.
•
Find more winners than losers, and the losses should be smaller than the 
gains
—More than 50% of our trades should make money. When we do lose 
money, which we will do, we want to make sure that our losses are much smaller 
than our gains. If you have more winners than losers and your losses are smaller 
than your gains, then you will make money. Actually, you can have more losers 
than winners if your losses are kept small enough. These patterns are so good and 
so predictive that if you trade with them, you should be able to get a higher than 
50% success rate. Like I say, managing your losses to a small value should be all 
you need to generate a good healthy profit week after week, month after month.

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©
 Nirvana Systems Inc.
1-1
Profiting with Chart Patterns
1
Tools of the Trade
There are certain things that we need to cover about chart pattern analysis. This is 
related to the work that I have developed over the last 10-12 years in looking at these 
patterns. You will not find this material anywhere else. There are certain tools that I 
use that help me quantify and isolate the best patterns and trade them. That is what we 
are going to talk about in this section.