In the previous post, we explored the foundations of technical trading. We examined how market behavior can appear structured even when it results from randomness, how bias affects interpretation and how volatility persistence helps explain why certain moves tend to cluster rather than appear in isolation. This post builds on that foundation by focusing on how to recognize meaningful movement and determine whether a chart structure is tradable.
Technical charts often present a wide range of setups, patterns, and interpretations. But a core distinction must be made between coincidental formations and actual price behavior driven by imbalance. Not all movements are equal, and recognizing the difference between random fluctuation and purposeful structure is essential.
A common assumption in technical analysis is that certain patterns or shapes inherently provide a specific outcome. This assumption is problematic without a defined context. The ability to recognize a flag or wedge does not imply statistical validity. For a price movement to be tradable, there should be characteristics that suggest underlying buying or selling pressure.
Unusual Movement
To determine whether a price move is meaningful, it must be assessed in relation to what is typical for that market. All assets have their own average range, pace and rhythm. When price breaks from that baseline through unusually strong or sustained movement, it can signal momentum or imbalance.
What makes these moves relevant is not their size alone, but the fact that they differ from normal behavior. This kind of shift may reflect changes in supply and demand or a reaction to new information. Such movements could mark a change in behavior and can serve as reference points. Their value lies in being statistically uncommon, which may suggest that market conditions have changed.
Pullbacks as Rebalance
Following strong directional movement, price tends to enter a state of reversion or pause. This is known as a pullback, a controlled retracement .It is not merely a pause. It reflects a psychological reset and the temporary rebalancing of order flow in response to imbalance.
Not all pullbacks are viable. For a setup to be considered tradable, the retracement must occur in the context of a meaningful prior move. When the underlying trend is intact and the pullback is controlled, the structure can offer a more reliable opportunity.
The Role of Standardization
Trading should be based on discretion. It involves interpretation, context and deliberate decision-making. But without structure, it risks becoming inconsistent and reactive.
Therefore movement and momentum should be measurable. What appears meaningful must be evaluated relative to the asset’s own historical behavior, not assumed based on surface-level appearance. Without a reference, the evaluation may lack foundation.
Measurement supports model building. Standardization supports disciplined execution. A trader might believe a move is strong based on visual cues or pattern familiarity, but if it lacks historical context or fails to meet defined criteria, that evaluation could be flawed.
Framework and Models
There are categories of tools that can be incorporated to support standardization. The choice is not fixed and should be based on personal preference, methods and research. Example:
Such models are used to define context, not to predict outcomes. They help standardize analysis and filter out questionable movements and patterns.
Conclusion
The textbook patterns often referenced on their own do not create edge. Tradable charts are those where meaningful movement, defined by momentum, imbalance and structure, can be observed and evaluated using standardized methods. The purpose is not precision but repeatability. Discretionary trading is built on contextual evaluation supported by consistency and objective tools.
Technical charts often present a wide range of setups, patterns, and interpretations. But a core distinction must be made between coincidental formations and actual price behavior driven by imbalance. Not all movements are equal, and recognizing the difference between random fluctuation and purposeful structure is essential.
A common assumption in technical analysis is that certain patterns or shapes inherently provide a specific outcome. This assumption is problematic without a defined context. The ability to recognize a flag or wedge does not imply statistical validity. For a price movement to be tradable, there should be characteristics that suggest underlying buying or selling pressure.
Unusual Movement
To determine whether a price move is meaningful, it must be assessed in relation to what is typical for that market. All assets have their own average range, pace and rhythm. When price breaks from that baseline through unusually strong or sustained movement, it can signal momentum or imbalance.
What makes these moves relevant is not their size alone, but the fact that they differ from normal behavior. This kind of shift may reflect changes in supply and demand or a reaction to new information. Such movements could mark a change in behavior and can serve as reference points. Their value lies in being statistically uncommon, which may suggest that market conditions have changed.
Pullbacks as Rebalance
Following strong directional movement, price tends to enter a state of reversion or pause. This is known as a pullback, a controlled retracement .It is not merely a pause. It reflects a psychological reset and the temporary rebalancing of order flow in response to imbalance.
Not all pullbacks are viable. For a setup to be considered tradable, the retracement must occur in the context of a meaningful prior move. When the underlying trend is intact and the pullback is controlled, the structure can offer a more reliable opportunity.
The Role of Standardization
Trading should be based on discretion. It involves interpretation, context and deliberate decision-making. But without structure, it risks becoming inconsistent and reactive.
Therefore movement and momentum should be measurable. What appears meaningful must be evaluated relative to the asset’s own historical behavior, not assumed based on surface-level appearance. Without a reference, the evaluation may lack foundation.
Measurement supports model building. Standardization supports disciplined execution. A trader might believe a move is strong based on visual cues or pattern familiarity, but if it lacks historical context or fails to meet defined criteria, that evaluation could be flawed.
Framework and Models
There are categories of tools that can be incorporated to support standardization. The choice is not fixed and should be based on personal preference, methods and research. Example:
- Volatility Measure: Could be used to confirm when price moves outside a volatility-based envelope, indicating movement beyond the average range.
- Momentum Measure: Could be used to confirm whether current price action is faster or stronger compared to recent historical behavior.
Such models are used to define context, not to predict outcomes. They help standardize analysis and filter out questionable movements and patterns.
Conclusion
The textbook patterns often referenced on their own do not create edge. Tradable charts are those where meaningful movement, defined by momentum, imbalance and structure, can be observed and evaluated using standardized methods. The purpose is not precision but repeatability. Discretionary trading is built on contextual evaluation supported by consistency and objective tools.
Technical Trading: Research and Application
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Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Technical Trading: Research and Application
stockleave.com/
stockleave.com/
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.