Chart Patterns

In this section

The Chart Patterns tab in the Automatic Strategy Builder (ASB) is dedicated to detecting and utilizing various chart patterns for creating trading strategies. Users can select the desired patterns, and the builder will incorporate their detection into the strategy creation process.

Overview

Chart patterns are essential tools in technical analysis, providing visual representations of historical price movements and potential future price directions. The ASB supports a comprehensive range of chart patterns, allowing users to leverage these formations to enhance their trading strategies.

Types of Chart Patterns

The ASB can detect a wide array of chart patterns, based on the "Encyclopaedia of Chart Patterns" by Thomas Bulkowski. These include:

Harmonic Patterns: Such as "Gartley," "Bat," "Butterfly," "Crab," and "Shark-32," which are crucial for traders looking for price symmetry and precision in market movements.
Classic Chart Formations: Including "Double Top," "Double Bottom," "Head and Shoulders," and "Triple Top/Bottom," widely used for their reliability in predicting potential market reversals.
Continuation Patterns: Like "Pennants," "Wedges," "Triangles," and the "High and Tight Flag," which signal the continuation of a trend.
Volatility Indicators: Patterns such as "Broadening Formation" and "Broadening Wedge" indicate increasing volatility and potential market tops or bottoms.
Unique Configurations: Including less common but insightful patterns like "Wolfe Wave," "Pivot Point Reversal," and "Three Rising Valleys/Falling Peaks."

Selecting and Using Chart Patterns

To use chart patterns in the strategy builder:

Select Patterns: Navigate to the Chart Patterns tab and select the desired patterns from the list.
Pattern Detection: The builder will use the selected patterns to detect potential trade setups and incorporate these detections into the strategy creation process.

Configuring Chart Patterns

Each chart pattern can be configured to match the specific needs of the trading strategy. The available configuration options include:

Bearish: Enable or disable detection of bearish patterns.
Bullish: Enable or disable detection of bullish patterns.
Cancel Changed Patterns: Specify whether to cancel patterns that have changed.
Confirmation Bars: Input the number of bars required to confirm the pattern.
Is Strict Patterns: Enable or disable strict pattern detection criteria.
Wait Confirmation: Specify whether to wait for pattern confirmation before acting.

Detailed Example of Using Chart Patterns

Suppose a user wants to create a strategy utilizing the "Head and Shoulders" and "Double Bottom" patterns:

Navigate to the Chart Patterns Tab: Open the Chart Patterns tab in the ASB.
Select Desired Patterns: Check the boxes next to "Head and Shoulders" and "Double Bottom."
Configure Pattern Settings: Adjust the settings for these patterns, such as enabling both bullish and bearish detections and setting confirmation bars to 3.
Incorporate into Strategy: The ASB will now detect these patterns in historical data and use their appearances to trigger trades based on the user’s configured rules.

Comprehensive Pattern List

For a complete list of all supported chart patterns and further details on their definitions and usage, users can visit the Chart Pattern Scanner Features page.

Summary

The Chart Patterns section in the ASB is a powerful tool for traders looking to incorporate technical chart pattern analysis into their strategies. By providing a wide range of patterns and enabling users to select and configure specific formations, the ASB allows for highly customized and effective strategy building. This flexibility ensures that users can tailor their strategies to fit their unique trading styles and market conditions, enhancing the robustness and adaptability of the trading strategies created within the ASB.