Different chart patterns including candlesticks have been known in technical analysis for long. Now many of them considered as typical or classical ones. These patterns can signal a particular bullish or bear trend. Naturally, the signals are not successful all the time but give at least the most probable scenario of price movement. On the other hand, many other patterns have not been described yet. However, whether these patterns are known or unknown, many of them can be repeatable in the future and, therefore, they all can be used for prediction in the stock market.
To facilitate the job to memorize many different patterns and analyze a huge amount of charts, some chartists use special software tools – pattern recognition systems. These tools normally perform statistical analysis and filtration assuming that the patterns are generated by a probabilistic system and can be persistent in the future. The statistical researches of charts also show that indeed many formed patterns have typical structures of price developments.
Technical Analyzer TA-1 (TA) by Addaptron Software has a feature to predict a future trend of stock, ETF, or index prices using pattern similarity filters. The prediction period can be chosen within a range 1..60 trading days; the period of historical data that used for matching is recommended in 4..16 times longer than prediction period. TA searches for the best matches by scanning all historical data from the internal database. The typical number of scanned patterns is around 200,000 (if the number of symbols in the database is around 500).
TA ranks all possible matches on the basis of maximum correlation and minimum deviation within given historical period. It performs pattern matching using open, high, low, and close prices and volume data. When scanning is completed, depending on degree of similarity, TA ranks all possible matches within given historical period and then combine them into a single structure. TA composes forecast using several best matched patterns (top ranked). Since the statistical regularities of the patterns help to create more stable picture, TA allows adding up many top-rated patterns. The composite result is built as a weighted average with weights that are proportional to patterns’ ranks.
To try free version of TA, visit Addaptron Software download page to download and install it.