Focus on Rules not Patterns
Head and shoulders patterns are not carved in stone. They look recognizable but must be interpreted.
Humans like us are bad at estimation and prediction.
For every well-known “chartist” there are 25,000 guys who tried the same and blew up or didn’t make it.
Recognizing a chart patterns are no different to me than recognizing an odd number from an even number. What do you do with it? What’s the context of the information?
When I moved to LA from Manhattan, we all got a book of street maps called the Thomas Guide. It’s a spiral bound book of maps that we all kept in our cars. GPS was not included in smart phone plans and you had to get it separately, but it was expensive.
If you don’t know where you are going, having a Thomas Guide in your car is not going to help you. It will help you get wherever you want to go, but you need to come up with the destination. Same with trading. You need to know when to enter and exit and how much to own (or how fast to drive).
If you “recognize” a pattern, you don’t know where to enter, exit, or position size. That’s why I don’t consider charting as a long-term methodology to trading for the majority of aspiring traders.
In fact, the way most good traders become “great” or even just better, it’s by letting go of charts and focusing on process and trading rules that are not derived from chart patterns.
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