Fitting patterns to your bias?

2023年1月26日

I saw a post in twitter which marked a particular converging triangle on BTCUSDT chart on 4H timeframe (As shown below) and implying more bearishness ahead. But, is it really correct analysis?

https://www.tradingview.com/x/TliXz8u6/

Risk of drawing patterns manually is that we can fit any pattern to price action based on our bias. To overcome this, we need to follow a standard method to draw patterns on chart. Below is my algorithm for drawing patterns.

• Draw zigzag on chart
  
• Find and draw a trend line joining 2 or more pivot lows where price has not breached the trend line towards downside.
  
• Find and draw a trend line joining 2 or more pivot highs where price has not breached the trend line towards upside.
  
• While drawing, trend lines can touch the pivot candle at any point. But, candles should not lie outside trend line.
  
• Take fake outs into consideration to make minor adjustments.
  
• At least one among the above trend line should join 3 or more pivots. Another one can have just two pivots.
  

Do you see clear pattern after following these steps? If yes, then you found your pattern and also a skill to define them objectively without bias.

2023年1月27日

注释

Clarification:

The point of this post is to advise the dangers of fitting patterns to our bias. As you can see in the chart - you can almost draw any pattern on the given price action. This can make it very confusing for users when different people interpret the price action as different patterns.

Further, I have also explained how to avoid this by using an algorithmic approach to draw trend lines and patterns.

Also check the linked video idea for detailed step by step guide.

2023年1月27日

注释

I forgot to mention, here are some of my open source/free to use scripts which you can use for automatically scanning patterns and trend lines on the chart.

Trendline-Pairs-Deep-Search
Wedge-and-Flag-Finder
Auto-Trend-Lines