A Q about Pattern Trading

[MyRightEye]

I have a question about pattern trading. I have noticed some stocks that always dip an hour after markets open but then usually always recover well about an hour before market close. Can you make any real money trading on these patterns?

And is this actually what is called "pattern trading" or is it something different?

[aiki14]

Originally Posted by MyRightEye

I have a question about pattern trading. I have noticed some stocks that always dip an hour after markets open but then usually always recover well about an hour before market close. Can you make any real money trading on these patterns?

And is this actually what is called "pattern trading" or is it something different?

Let me answer the 2nd part of your question first with a definition of pattern trading. Any trading based upon the technical analysis of price movements is effectively pattern trading, looking for predictable movements (patterns) in the movement of stock price over time. What you may have heard about is trading systems designed to identify and signal trades based upon these patterns.

The patterns you reference are in my opinion real for some stocks and here's why I believe they happen. Remember that it is really the thinking of crowds or herd mentality that we are looking to spot and use as a predictor. The herd begins buying at open and as the price goes up at first more buyers follow the herd, the pro's sell into this rally until the buyers peter out, as the buying slows the herd starts to see this and thinks there is a top and begins to sell driving the price down.
A more technical way to see this, is as an occillation between overbought and oversold conditions. Stochastic occillators and MACD are ways to visualize these occillations.

Learn more at
www.investopedia.com

Hope that helps

[netwrangler]

One other thing to consider: pattern trading works as long as the pattern lasts. But patterns change. Some external event comes along and knocks the pattern off-track [like a biotech firm's "miracle drug" failing a clinical trial]. Then all bets are off.

I see fundamentals as creating an environment where patterns can emerge. Changes in fundamentals often cause changes in existing patterns.