Black-boxes and pattern recognition

There is a company, I believe it's called Trade-Ideas that is for retail investors; some brokerages offer Trade  Ideas as part of their research package. The point is, Trade Ideas is a retail based, pattern recognition system; it seeks out flags, pennants, triangles, etc.

I've told you in the past, about 90% of technical patterns that traders have learned to trade for over a century, are now being manipulated by professional HFT and other black-box systems. For example, yesterday during the afternoon session, a bear flag developed. A century of books have taught us that bear flags are continuation patterns and once they break below lower support they should make a new leg lower. Traders continue to fall for this as the black box systems continually manipulate these common patterns.

Here's yesterday's bear flag (bearish continuation pattern)

The trendlines in red define the bear flag, traders expectations is for a break of lower support and a new leg down. Instead you see near the close there was an upside breakout. This leads traders to believe it's a failed pattern, any who entered the flag on hopes of the next leg down were stopped out. This morning the flag broke to the downside. Traders who entered long at the close yesterday seeing a failed pattern where at a loss and most likely sold while shorts seeing the pattern finally work enter the market. Once again price moves back into the flag and some of those shorts are going to cover. Around 10 a.m. this morning we see one more break below the flag, drawing in short day traders again.

The point of all of this? HFT companies and market makers/specialists, etc are all making the spread on each transaction that is precipitated by the false or expected moves around this flag. In addition, these large institutional middlemen also get rebates (cash back) for volume they run. In a market with very little volume, the manipulation of a single flag at least 5 times in a few hours, is providing these middle men and HFT's income in a market where there are few participants left.

The point-whenever you see a technical pattern, always assume it will be manipulated.