Charting  |  JUL 2003

Cycles, Volatility, And Chart Formations by Daniel L. Chesler, CTA, CMT

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 shape terminology.

by Daniel L. Chesler, CTA, CMT