Steve Palmquist.Author of ‘The Timely Trades Letter’. ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns. Analyzing trading patterns is vitally important to trading. Trading without understanding the statistics of a trading pattern is just taking unknown risks, and makes little sense. The trading patterns tested and analyzed in my first two books provide the beginnings of a trading toolbox, and the knowledge of when to use each tool. Without a clear understanding of how and when different trading patterns work, it’s easy to get caught up in fear, greed, group think, etc. However these emotional and non-data driven approaches often lead to losses. Traders need to be first and foremost focused on what the market is doing, and then selecting the most appropriate trading patterns, or remaining in cash, to address the current market conditions. Without previous testing and analysis of trading tools, and how they perform in differrent market conditions, traders are just randomly using tools that may or may not be appropriate for the current market.It is also very important to have a clear exit strategy before entering any trade. If I don’t know where I want to exit a trade then I don’t take the trade in 1st place. In trading range markets most stocks tend to pop and drop, if they didn’t the market (which is the summation the large number of stocks ) would be trending. So a trading range environment tells us that stocks are not going to run very far, by definition. I use this information to drive my exit strategy which is more short term in a trading range market then it is a trending market as outlined below. In a trending market, individual stocks tend to pop and then move for a while. The market, the summation of a large number of stocks, is moving or trending because a lot of individual stocks are moving or trending. Once again observing the market conditions tells us how individual stocks are likely to behave, and that tells us how to manage our exit strategies.Trading should be data driven, not based on emotion, whishful thinking, or hot tips from TV hosts. To be data driven one needs to test and analyze trading tools and find out what really works, and when each tool should be used. Traders must understand which tool to use for a specific task, and have a clear understanding of how the tool works, and what can and cannot be done with it. I have extensively tested several trading systems, the results of this testing on specific trading trading tools are outlined in ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns. The testing process helps us understand how stocks usually behave after forming a specific pattern such as being outside the Bollinger Bands, showing strong distribution or accumulation, or pulling back or retracing during a trend. Understanding what a stock is most likely to do forms the beginning of a trading strategy. Trading without this information is taking unknown risks.