We would like to introduce the PatternLab application, the module of AnalyticalPlatform.com. Current version offers testing of 66 price patterns on 3000 stock titles.
- The application brings detailed performance and risk statistics about the pattern behaviour.
- If deciding to trade according to the tested pattern, the application also provides email notifications.
- All these services are provided free of charge. Additional paid service is pattern testing with the inclusion of market/broker fees.inclusion.
Who is the PatternLab module for?
The module is for active traders using technical analysis and patterns recognition as entry/exit rules for their trades.
What is a “pattern”?
A pattern is a candlestick formation, usually consisting of 2 to 6 candlesticks. This formation has got precise rules which has to suit to be established as a specific pattern. Generally said, the pattern is a formation regularly and periodically appearing in asset price development through time. From another point of view a pattern can be considered as a “mistake” or an inefficiency in the price development. A price development is considered as a random (stochastic) process and a pattern occurrence disrupts this randomness. One candlestick represents the time period such as day, week or month.
Where can I find the list of the available patterns?
There is a list of available patterns in the “Patterns Recognition” section. Feel free to google random patterns to gain their intuition.
How can I use patterns for my trading?
The patterns are believed to be an entry or an exit signal for opening/closing position. It means that in the time the pattern occurs it is a signal for traders to open or close their position.
How can I exploit the PatternLab application?
The PL app is the tool for testing and verifying included patterns. The PL’s database includes 66 price patterns and 3000 assets (stocks at the moment) which can be tested for their predictability power. In general the more the pattern successful is the more the specific market is inefficient (and the specific pattern has got more predictability power). The PL application brings you detailed performance and risk statistics about the pattern behaviour. The patterns with a good predictability power (with good statistics) can be followed and you can be informed via notifications or emails about the occurence in the market. Using PatternLab application you can follow hundred of global financial assets and find some of 66 pre-defined patterns at daily, weekly or monthly candlestick formations.
Is there any rigorous proof why it could work?
The efficient market hypothesis is the answer. There are 3 types of market efficiency: strong, semi-strong and weak market efficiency. For the strong form of efficiency is believed that markets accommodate each public information and a price development performs jumps (without trends). The price development following the jumps is completely random (it is called diffusion). In practise, the strong market efficiency is very often disrupted through time and then trends and their persistency occur in the markets. Moreover, there can be a specific behavior of specific market participants which can cause “regular” and “periodical” market behaviour. E.g. large mutual fund rebalancing its EUROSTOXX50 portfolio every first monday in the month can cause “regular” and “periodical” market movements in those assets (This is only hypothetical case, not specific true story or advice). These “regular” and “periodical” market movements are basically the patterns.
How can I start?
You can use the video to get started.
- Choose a period (FROM the date and To the date) you wish to find patterns.
- Select stock(s) you would like to test.
- Select pattern(s).
- Click on “Add chart” button.
- Surf onto “BACKTEST-PATTERNS” card. (Now, you can see your preferences on the upper side of the site.)
- Set up the initial capital (your virtual amount of money).
- Choose the “Direction” option: both long & short, long only, short only.
- Set up your “Risk” per one trade.
- Set up you profit target and stop loss.
- Click on “Add patterns” button.
- Click on “Run strategies” button.
- On the right side you can surf through cards containing backtests results. The most interesting information are located in the “Performance metrics” card, e.g. Sharpe ratio is the first indicator you should take care about.
- The test and its set up you are satisfied with, you can save using “Save” button.
- Set up your notifications for desired patterns occurrences at desired assets. You can do that via “Alerts” card. Since now you receive email/notification every time the selected patterns appear.
How many assets I can scan?
The current stock universe includes 3000 stocks from Russell 3000 index.
Financial markets are well known for their regular behavioral change in terms of volatility, trend changes, or stagnation, due to a large number of qualitative and quantitative inputs that can’t be easily identified. However we can find patterns in price movement for some assets, and with some probability to predict future price moves and use this information to support investment decision-making (opening or closing a trading position).
The analysis of the price patterns of financial instruments can be divided into three basic categories:
- analysis of historical price (price patterns)
- analysis of fundamental information (earnings, news, economic indicators)
- analysis of crowd psychology (game theory, crowd behavior)
These three categories are interconnected and complementary. Historical price trends include a footprint of the crowd’s psychology and fundamental information.
Our team is currently working on the PatternLab tool, which can automate search and statistically evaluate patterns (price, fundamental, crowd). Using a simple form, the user selects the required pattern and asset list for analysis. Patterns are divided into several categories – an indication of volatility, a continuation of the current trend, or trend reversal.
PatternLab user is the one who needs to use hard statistical data on a regular basis in investment decision making and not only relies on its intuitive decision-making. A typical example is a portfolio manager who manages the trading positions of hundreds of clients, and his decision can have a big impact on managed accounts and his credibility related to new capital acquisitions.
The portfolio manager is in a situation where he decides after 10 months to close a trading position on the selected asset. He will use PatternLab for analysis and get a statistical evaluation that if he doesn’t close the trading position immediately, but will wait for next 5 trading days, he will make extra two percent.
PatternLab may, of course, be used by retail traders, brokers or marketing department for easier communication with clients while acquiring or communicating the current status of trading positions.
The uniqueness of PatternLab lies in the expert know-how of behavioral patterns that are the result of a ten-year application in the investment decision-making process. This is not about the over-optimized output of Artificial Intelligence tools but verified expert knowledge combined with regular statistical analysis.