Many traders these days rely on indicators and oscillators to make their trading decisions. There have been countless trading systems built on these indicators. While these indicators can sometimes identify a move in a stock or commodity they are not very reliable. How many times have you seen an overbought or oversold market remain that way only to have the indicator tell you something completely different? Here are three reasons why chart patterns trump indicators.
1. Chart patterns recognize human emotion. Oscillators and indicators do not, they move after the price chart moves. In other words, the actual price and volume are the only true real time factors that matter. All indicators and oscillators are lagging, they are not real time.
2. Chart patterns will tell us where there is support and resistance on a chart. Support and resistance is really what trading is about. Traders should buy major support and sell major resistance. Minor support and resistance should simply be avoided. Oscillators and indicators do not tell us any of this.
3. Chart patterns repeat over and over throughout history, therefore with practice traders can find several chart pattern setups that create high probability trades. Oscillators do not do this. This is why flag patterns, consolidation patterns, head and shoulder patterns, and other chart configurations have become so popular over the years.