The simpler the chart pattern the better it is. Simply because more traders identify it as such and act accordingly. Chart patterns are self fulfilling prophecies and the clearer the pattern is the more promising the trading chance.
Clarity means simplicity and so the simple chart pattern is the best one. Which is the best of the best? The trend is it, of course, closely followed by the breakout of a base, because, among other things, it is also a trend.
Now the secret trading formula – we already know its biggest disadvantage. It is magic but secret. Nobody knows it, and… that is the reason why you should doubt that it actually works. If hardly anyone can detect a trading signal by this secret and magic indicator system, it is hardly a self fulfilling prophecy trading system. Something else must be there to power it statistically.
So, the first approach, jumping on the trading signal that everybody sees, works, but you may be too late or too early. Essentially this is a race with others who are also eager to exploit the pattern as early as possible. Getting on board early has a high rate of failure. Many trades will not work, because the chart pattern was in its infancy or too fuzzy and the warm cash stream of others that ought to push prices further did not materialize. When the pattern gets clearer, it surely is there. Many quick TA wizards already pulled the trigger, but are there still enough latecomers coming after you?
The second approach, the secret trading system, an indicator or a complex formula that is only known by few, has no timing problems like the above, entering the market early or late. Timing is done by the trading formula itself. The question is just, does it work at all?
The quick answer is that it depends. If the indicator wraps around the best chart pattern, the trend, then yes. A trend has the theoretical potential of infinite gains.
This is no joke! If a trend shows up, it means the market has underestimated all the time the real value of the traded thing. Otherwise the price would have jumped to a new level without any trading in between. If the market has misjudged the value until now, it perhaps may also be misled right now and for some time in the future. Principally there is indeed infinite potential for a trend at a high.
Eventually we see again, if both approaches could be fused, the safest chart pattern, the trend, and an indicator-based trading system, we may have arrived at the virtual optimum of trading behavior. Trend timing or pattern scanning alone may be inferior.
One attempt for this fusion is riding short trends. It could also be called swing trading, but if used in longer running trends, it becomes more and more trend trading. Let’s call it intermediate trend trading. You already have the chart pattern you are searching for, the trend. Now, let a machine do the exact pinpointing for this pattern.
A neuronal trading software that is able to analyze the current short-term trend direction and its turning point better than human traders with all their psychologic hindrances may be the final answer. Perhaps also for you?