Lessons › Chart patterns › Probabilities, not promises: reading pattern stats
World 3 · Chart patterns · lesson 17 · level 4
Probabilities, not promises: reading pattern stats
A pattern that works 6 times out of 10 still fails 4 times, so what matters is how you handle the 4.
In one line
A pattern that works 6 times in 10 still fails 4 times. The winners are the traders who plan for those 4.
Explained simply
Think of a weather forecast that says there is a 60% chance of rain: it still stays dry about 4 days out of 10. Pattern stats work the same way. They tell you how often something happened before, not what will happen next time.
The lesson
The app's scanner labels every pattern it finds as worked or failed, so you can see how often each one reached its target before its failure point. A success rate only means something with enough examples, and it can change across markets, timeframes and years. Even a pattern with a good rate can lose several times in a row. What matters is using the same stop and target rules through the losses.
A worked example
Illustrative example: pattern A worked 6 times out of 10, and pattern B worked 540 times out of 1,000. A's rate is 60% (6 divided by 10) and B's is 54% (540 divided by 1,000). A looks better, but it rests on only 10 examples, so B's rate is far more reliable. Even at 60%, a trader should expect about 4 failures in every 10 trades (10 minus 6).
The same idea at four levels
- Beginner. A success rate tells you how often a pattern worked in the past, not what will happen next.
- Foundation. A 60% pattern still fails about 4 times in 10, so every plan needs a stop for those failures.
- Intermediate. Check the sample size first, because 6 wins out of 10 means far less than 600 out of 1,000.
- Advanced. The same pattern can score differently on different markets, timeframes and years, so only compare stats measured the same way.
- Expert. Experts judge a pattern by its full record, including costs, average win and average loss, and they expect losing streaks even when a method has an edge.
Mistakes to avoid
- Trusting a success rate built from a handful of examples.
- Expecting a 60% pattern to win the very next trade.
- Comparing success rates that were measured with different rules, markets or timeframes.
Check yourself
What does a pattern's success rate tell you?
How often it worked in the past. It is a record of past results.
A pattern works 60% of the time. How often does it fail?
About 40% of the time. 100% minus 60% is 40%.
Which picture fits pattern stats best?
A weather forecast with a chance of rain. It gives odds, not certainty.
What should every pattern plan include because some trades fail?
A stop at the point where the pattern fails. The stop handles the trades that fail.
Pattern A won 6 times out of 10 and pattern B won 540 times out of 1,000. Which rate is more reliable?
Pattern B, because it has far more examples. Bigger samples give steadier rates.
Goal of this lesson: Read a pattern's success rate correctly, including its sample size, market and timeframe.