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The psychology behind chart patterns is the foundation of trading chart patterns.
Do you know why chart patterns fail?
Because 80% of traders consistently fail to recognize the opportunities presented by chart patterns, it is critical to understand how the other 20% think in order to develop the proper mindset toward trading patterns.
In this blog, I will demonstrate the psychological link between traders and the psychology behind chart patterns.
n the 1950s, psychologist Solomon Asch conducted a series of experiments which concluded: Whenever we are unsure how to act, we look to the group to guide our behavior. That is why most traders do not follow their time-tested strategy (which tells the truth), but instead listen to or read the opinions of others and are unable to see the truth.
The truth about trading is rather simple and perpetual.
” Human behavior is predictable and repetitive.”
To learn more about the psychology behind chart patterns, consider the following key concepts.
- Because every trader is connected to every other trader by only one means, namely price, it is safe to assume that price is the only factor that guides traders’ perspectives on what will happen next.
- Chart patterns emerge as a result of mass psychology and market participants’ repeated emotions of fear and greed.
- Every moment in the market is unique, which means that even if there is a visible chart pattern, it can become invalidated, which is why every chart pattern has a probability associated with it.
- The most important chart patterns are the ones which can easily identified.
- Chart patterns have a statistical edge, which means that if you trade a chart pattern with a high probability of profit repeatedly, you will almost certainly end up with a net overall profitable outcome.
