Young Ho Seo / Profil

Most advanced Elliott Wave Software for your Trading

Elliott Wave Trend is the most advanced Elliott Wave Trading software, which helps you to trade with various Elliott Wave patterns like Wave .12345 pattern and Wave .ABC and Wave .ABCDE, and so on. Elliott Wave Trend was built on the concept of Precision Trading with Elliott Wave Structure Score. Our Elliott Wave Trend is professional tool for professional trader. Elliott Wave Trend is available in both MetaTrader 4 and MetaTrader 5 platform.

In the following article, we explain some basics operation with Elliott Wave Trend in MetaTrader.

https://algotrading-investment.com/2018/10/25/how-elliott-wave-can-improve-your-trading-performance/

At the same time, you can watch YouTube video titled as “Elliott Wave Trend Intro to find out more about Elliott Wave Trend Indicator.

YouTube Link: https://youtu.be/Oftml-JKyKM

Our Elliott Wave Trend is available in both MetaTrader 4 and MetaTrader 5 version. Here are the links to Elliott Wave Trend.

https://algotrading-investment.com/portfolio-item/elliott-wave-trend/

https://www.mql5.com/en/market/product/16472

https://www.mql5.com/en/market/product/16479

Powerful Non Repainting Supply Demand Zone MetaTrader Indicator

Ace Supply Demand Zone is specially designed non-repainting Supply Demand indicator. Since you have an access to fresh supply and demand zone as well as archived supply demand zone, you can achieve much better profiling on price movement in Forex market.

With the Ability to trade the original supply demand zone trading, you can also perform highly accurate Angled Supply Demand zone trading as a bonus. With a lot of sophisticated gadgets built inside, Ace Supply Demand Zone indicator will provide you unmatched performance against other Supply Demand zone indicator out there.

Here is the link to Ace Supply Demand Zone Indicator.

https://www.mql5.com/en/market/product/40076

https://www.mql5.com/en/market/product/40075

https://algotrading-investment.com/portfolio-item/ace-supply-demand-zone/

In addition, we provide the YouTube video for Ace Supply Demand Zone Indicator. In terms of indicator operation, both mean reversion supply demand and ace supply demand zone indicator are similar. Hence, you can watch this YouTube Video to accomplish the supply demand zone indicator.

YouTube “Supply Demand Zone Indicator”: https://youtu.be/lr0dthrU9jo

Harmonic Pattern Detection Indicator MT4

Trading Indicator is the realization of particular theory or trading strategy or trading ideas for real world trading. There is always gap between theory (i.e. ideas or strategy) and practice. This is the same for Harmonic Pattern trading too.

Hence, not all the harmonic pattern detection indicators are the same. The main variations of Harmonic pattern indicators can be categorized as following four types. Users should understand the pros and cons of each variation to maximize their trading performance with harmonic patterns.

Type 1: Non lagging (fast signal) but repainting

option to enter from turning point. Indicator does not show the failed pattern in chart and last pattern can repaint. This is almost considered as standard Harmonic Pattern Indicator. Even if they are repainting, harmonic pattern trader just accept it as it is. 99% of time, this is the harmonic pattern product you will get from the market whether they are free or paid one. You can trade live with this indicators but historical patterns can not be used to fine tune your strategy.

Type 2: Lagging (slow signal) but non repainting

no option to enter at turning point (i.e. early signal). This type of indicator turns harmonic pattern indicator as slow as moving average cross over. It might be not overly attractive option for your trading. Indicator does not show the failed pattern. Hence, you can not use historical patterns to tune your strategy but last pattern does not repaint. You can trade live with this indicators but historical patterns can not be used to fine tune your strategy. Probably about 1% of harmonic pattern indicator is this type.

Type 3: Detecting pattern at point C but repainting

option to enter at turning point. Indicator detect pattern too early and you have to wait quite bit of time until price move near the point D. In fact, price may not move near point D. You might just waste your time waiting for the pattern. Indicator does not show the failed pattern and last pattern can repaint. You can trade live with this indicators but historical patterns can not be used to fine tune your strategy. Probably about 1% of harmonic pattern indicator is this type.

Type 4: Non lagging (fast signal) and non repainting

option to enter from turning point. At the same time, the pattern is not repainting. This is hybrid of all above three system and can be considered as the most powerful harmonic pattern indicator. You can trade live with this indicators and you can also use historical patterns to fine tune your strategy. With this indicator, you are complying perfectly with the statement “Trade What you See”.

To accomplish this post, you can read the full blog article about the types of Harmonic Pattern Indicator from the link below.

https://algotrading-investment.com/2019/03/03/harmonic-pattern-indicator-explained/

In addition, you can watch the YouTube Video to feel what is the automated harmonic pattern indicator like. For your information, we provides two YouTube videos with title and links below.

YouTube “Harmonic Pattern Indicator”: https://youtu.be/CzYUwk5qeCk

YouTube “Non Repainting Non Lagging Harmonic Pattern Indicator”: https://youtu.be/uMlmMquefGQ

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MetaTrader 4 is one of the most popular trading platform since 2010. It is accessible for free of charge for any trader from all over the world. We provide a range of powerful harmonic pattern detection indicator particularly for MetaTrader 4 platform. Below is the list:

1. Harmonic Pattern Plus (2014)

Harmonic pattern plus is extremely good product for the price. With dozens of powerful features including Pattern Completion Interval, Potential Reversal Zone, Potential Continuation Zone, Automatic Stop loss and take profit sizing. This is type 1 harmonic pattern indicator.

Below are the Links to Harmonic Pattern Plus

https://www.mql5.com/en/market/product/4488

https://algotrading-investment.com/portfolio-item/harmonic-pattern-plus/

2. Harmonic Pattern Scenario Planner (2014)

With additional features of predicting future harmonic patterns, this is very tactical harmonic pattern indicator with advanced simulation capability on top of the powerful features of harmonic pattern plus. This is type 1 and type 3 harmonic pattern indicator.

Below are the Links to Harmonic Pattern Scenario Planner

https://www.mql5.com/en/market/product/6240

https://algotrading-investment.com/portfolio-item/harmonic-pattern-scenario-planner/

3. X3 Chart Pattern Scanner (2019)

X3 Chart Pattern Scanner is next generation tools to detect profitable patterns in Forex market. With non repainting and non lagging algorithm, this tool can detect advanced Harmonic Pattern, Elliott Wave Pattern, X3 Pattern structure for your trading. As a bonus, it provides your Japanese candlestick patterns too. This is type 4 harmonic pattern detection indicator, which means that you can fine tune your strategy using historical patterns while you are trading the same patterns on live trading.

https://www.mql5.com/en/market/product/41993

https://algotrading-investment.com/portfolio-item/profitable-pattern-scanner/

Beat Corona Virus Together Discounts for MetaTrader

Since December 2019, we have observed the loss of lives due to this COVID-19 pandemic. Apart from this, COVID-19 has severely demobilized the global economy. Many of the affected countries have undergone the complete lock down. Life after the COVID 19 is tough for the entire society. We never knew that this will last this long.

During this Covid19 pandemic, we hope everyone is safe and well from this Corona Virus Crisis. We know this affect the whole world. Hence, we provide 50 USD discounts on the six MetaTrader 4 and six MetaTrader 5 products.

Discounted price is shown in the screenshot for the following six products.

Ace Supply Demand Zone indicator
Advanced Price Pattern Scanner
Elliott Wave Trend
Price Breakout Pattern Scanner
Harmonic Pattern Scenario Planner
X3 Chart Pattern Scanner (=Profitable Pattern Scanner)
This discounted price is only available when you buy these products from mql5.com

The price will go back to the original price when the discounts ends. Please take the discounted price now while it last only.

https://www.mql5.com/en/users/financeengineer/seller#products

https://www.algotrading-investment.com/

Here are some simple tips for you to stay safe from this Covid19 Crysis.

Don’t touch your face – Avoid touching your eyes, nose and mouth.
Don’t cough or sneeze into your hands – Cover your mouth and nose with your elbow or tissue when coughing or sneezing. Dispose of used tissue immediately.
Keep your distance – Maintain a distance of at least 2 meter from people who are coughing or sneezing.
Wash, wash, wash your hands
Finally, care the loved one.

Insignificant, Minor and Major Turning Points

Profitable pattern is the technical tool in detecting turning point of the financial market. We have shown that fractal wave is our specialized microscope in studying the profitable patterns in the financial market. Then you might be curious why turning points or zigzag price patterns happen fundamentally. This is an important question in our trading. The short answer is that people do not like to see price deviated too far from the fundamentals. Too far might be not the precise word. Too far indicates the extreme deviation. In statistical sense, this often indicates the case outside 95% confidence interval or higher. Let us illustrate some fundamentals that can make up the turning point in general sense.

The first fundamental example is earning of the company. Earning is the one of the most important fundamental that investors use to make the perception of the financial performance of the company. Hence, many of us use earning to buy or sell the stocks. If a stock price is too high over the earnings of the company (i.e. Price to Earning), this can create a turning point due to some sell pressure against recent buy trend. Likewise, if a stock price is too low over the earnings of the company (i.e. Price to Earning), this can create a turning point due to some buy pressure against recent sell trend.

Another fundamental example is that individual stock price tends to follow the index of the stock market. For example, Stock price of Amazon will follow S&P 500 index up to some degree depending on its market beta. If Stock price of Amazon is deviated too high from S&P 500 index, then this can create a turning point due to some sell pressure against recent buy trend. Likewise, if stock price of Amazon is deviated too low from S&P 500 index, then this can create a turning point due to some buy pressure against recent sell trend.

Now let us take some example from Forex market. EURUSD and AUDUSD are highly correlated. High correlated means that this two currency pairs often move together in the same direction. However, there are the cases that these two currency pairs can move in opposite direction for some notable period. If EURUSD is deviated too high from AUDUSD, then this can create a turning point due to some sell pressure for EURUSD against its recent buy trend. Likewise, if EURUSD is deviated too low from AUDUSD, then this can create a turning point due to some buy pressure for EURUSD against its recent sell trend. In fact, this is the basis of the Pairs trading strategy or Statistical arbitrage strategy.

We can take the two highly correlated instruments example in stock market too. Say we have Apple and United Technology stock prices are highly correlated. If United Technology stock price is deviated too high from Apple’s stock price, then this can create a turning point due to some sell pressure against the recent buy trend. Likewise, if United Technology stock price is deviated too low from Apple’s stock price, then this can create a turning point due to some buy pressure against the recent sell trend.

Some other important fundamentals that can create turning points in stock and forex market are the macroeconomic fundamentals. For example, GDP, employment rate, unemployment rate and inflation rate can create turning points depending on their positive or negative correlation to stock and forex market.

For example, say that the US employment rate and S&P 500 index are positively correlated. If S&P 500 price is deviated too high from the employment rate, then this can create a turning point in S&P 500 index due to the sell pressure against the recent buy trend. Likewise, if S&P 500 price is deviated too low from the employment rate then this can create a turning point in S&P 500 index due to buy pressure against the recent sell trend. Now let us take the example of negative correlation case. Say that unemployment rate and S&P 500 index are negatively correlated. If S&P 500 price is deviated too high from the employment rate, then this can create a turning point in S&P 500 index due to buy pressure against the recent sell trend. Likewise, if S&P 500 price is deviated too high from the employment rate then this can create a turning point in S&P 500 index due to sell pressure against the recent buy trend.

The same analogy can be applied in Forex market too. Say that the GDP of Great Britain is positively correlated to GBPUSD. Hence, when Great Britain achieves good GDP, then GBPUSD tends to rise. However, if GBPUSD is rising too fast and deviated too high from the GDP value, then this can create a turning point due to some sell pressure against the recent buy trend. Likewise, if GBPUSD is falling too fast and deviated too low from the GDP value, then this can create a turning point due to some buy pressure against the recent sell trend.

Many people think that only economic variables can create turning points in stock and forex market. However, this is not true. In fact, non-economic variable can create turning points for stock and forex market too. What matter is how highly the variable is correlated to the stock price or the currency. For example, say that the stock price of Company XYZ is positively correlated to temperature. Hence, if temperature goes up, then stock price of Company XYZ goes up too. However, if stock price of company XYZ is rising too fast and it is deviated too high from current temperature, then this can create a turning point due to some sell pressure against the recent buy trend. Likewise, if stock price of company XYZ is falling too fast and it is deviated too low from current temperature, then this can create a turning point due to some buy pressure against the recent sell trend.

So far, we illustrated why we see the turning points and price must move in zigzag manner in Stock and Forex market. In fact, the list of fundamentals that can create turning point or influence in turning point creation is too many in real world. Trader and investors tends to use the most important variables only. Which fundamental is more influential in creating the turning point is depending on how highly they are correlated to the stock price or the currency. In real world, the effect of these variables will be cancelled each other to create less effect or add together to create bigger effect against current trend. When the resulting effect is strongly against the current trend, we can have major (i.e. global) turning point. Major turning point is the most wanted entry for our trading because it provides incredibly long profitable range for our trading. In fact, some professional traders are highly specialized in trading with this major turning point only.

When the resulting effect of all the fundamentals is moderate against the current trend, we can have minor (i.e. local) turning point. Minor turning point is still not bad as we have some room to take our profits. As long as you manage your risk, the minor turning point can still give us opportunity to grow our capital.

If the resulting effect is weak and insignificant, then we can have insignificant (i.e. failed) turning point. We cannot make money with this insignificant turning point because the turning point is almost not noticeable. The effect takes up only on one candle bar or even less. This sort of insignificant turning point can happen when the effect several fundamentals are cancelled off each other leaving almost zero effect against current trend. For example, we have excellent GDP but poor unemployment rate. Say their net effect of GDP and unemployment rate is zero. There is no reason that current trend need to be stopped.

As we have illustrated, many fundamental factors can influence creation of turning points. Pattern is the great technical tool in detecting turning points comparing to other technical indicators because it is not lagging. However, our success rate with patterns will be subject to probabilistic outcome. Hence, we need to have good risk management skills in place. To achieve good success rate with your trading, technically you will need to master how patterns work including Fibonacci price pattern, Harmonic Pattern, Elliott Wave Pattern and X3 patterns. On top of your technically skills, it is still important that you are aware of most influential fundamentals for the stock and currency that you are trading with. Typically, it is best to make the trading decision based on both patterns and the fundamentals together.



About this Article

This article is the part taken from the draft version of the Book: Profitable Chart Patterns in Forex and Stock Market: Fibonacci Analysis, Harmonic Pattern, Elliott Wave, and X3 Chart Pattern. Full version of the book can be found from the link below:

https://algotrading-investment.com/portfolio-item/profitable-chart-patterns-in-forex-and-stock-market/

You can also use Ace Supply Demand Zone Indicator in MetaTrader to accomplish your technical analysis. Ace Supply Demand Zone indicator is non repainting and non lagging supply demand zone indicator with a lot of powerful features built on.

https://www.mql5.com/en/market/product/40076

https://www.mql5.com/en/market/product/40075

https://algotrading-investment.com/portfolio-item/ace-supply-demand-zone/

Below is the landing page for Optimum Chart (Standalone Charting and Analytical Platform).

https://algotrading-investment.com/2019/07/23/optimum-chart/

Repainting and Non Repainting Harmonic Pattern Indicator

Here is some quick guide on repainting and non repainting Harmonic Pattern indicators. Pattern Scanner based on Fractal Wave detection algorithm can be either repainting or non repainting one. In our products, we provide two choices between repainting and non repainting. Their capability and their price is different.

For Harmonic Pattern Scanner,

Harmonic Pattern Plus (and also Harmonic Pattern Scenario Planner) is the powerful but they are the repainting Harmonic Pattern Scanner. At the same time, they are cheaper. Below is links for them.

https://www.mql5.com/en/market/product/4488

https://www.mql5.com/en/market/product/4475

https://algotrading-investment.com/portfolio-item/harmonic-pattern-plus/

X3 Chart Pattern Scanner is non repainting and non lagging Harmonic Pattern and X3 pattern Scanner. Below is links for them.

https://www.mql5.com/en/market/product/41993

https://www.mql5.com/en/market/product/41992

https://algotrading-investment.com/portfolio-item/profitable-pattern-scanner/

Typically it is easier to trade with non repainting and non lagging Harmonic Pattern indicator. Of course, the signal will be reserved once they are detected. Hence, if you do not mind the cost, we recommend to use X3 Chart Pattern Scanner since it is non repainting Harmonic Pattern and X3 pattern indicator.

However, if you do not mind repainting Harmonic Pattern Indicator and you want to have something cheaper, then use Harmonic Pattern Plus (or Harmonic Pattern Scenario Planner). Many traders are still do not mind to use the repainting Harmonic Pattern Indicator. They are cheaper too.

If you are starter, we do recommend using non repainting Harmonic Pattern Scanner like X3 Chart Pattern Scanner. It is easier to trade with non repainting indicator. At the same time, there are a lot of bonus features inside X3 Chart Pattern Scanner too.

For your information, we are the only one who supply non repainting and non lagging Harmonic Pattern Indicator in the world. Of course, the first one in the world too.

In addition, you can watch the YouTube Video to feel what is the automated harmonic pattern indicator like. For your information, we provides two YouTube videos with title and links below.

YouTube “Harmonic Pattern Indicator (Repainting but non lagging)”: https://youtu.be/CzYUwk5qeCk

YouTube “Non Repainting Non Lagging Harmonic Pattern Indicator”: https://youtu.be/uMlmMquefGQ

Defining Profitable Patterns

To study profitable patterns, we start it by cutting out the specific size of patterns from long price series whether we are dealing with Forex or Stock market data. In doing so, we need to have ways of defining the structure of those specimen patterns. We introduce RECF Pattern Notation, as this is simple and intuitive for our trading. We can apply this notation to any patterns including Fibonacci Price patterns, Harmonic Patterns, Elliott Wave Patterns, X3 patterns, or any new patterns.

Once price series is transformed to fractal wave using Peak Trough Transformation. Price series will be transformed into series of small and large triangles. Easiest way to utilize this in your chart is to read the price from trough to peak in alternation or peak to trough in alternation. In defining each triangle, you need to know that one triangle represents two swings (i.e. right and left swings) and three points in price movement. Each triangle consists of one swing high and one swing low.

Defining Profitable Patterns 1

Each triangle can have two unique quantities to describe themselves. One is retracement ratio and the other one is expansion ratio. Retracement ratio concern only one triangle. The formula to calculate Retracement ratio is as below:

Retracement Ratio = right swing of first triangle (Y0)/ left swing of first triangle (Y1).

Sample Calculation: Let us say that Facebook have right swing (i.e. swing low) of 100 dollar and left swing (i.e. swing high) of 200 dollar. We can calculate the Retracement ratio as below:

R = 100/200 = 0.5

Defining Profitable Patterns 2

Expansion ratio is calculated over two successive triangles. The formula to calculate Expansion ratio is as below:

Expansion ratio = right swing of first triangle (Y0)/ left swing of second triangle (Y2)

Sample Calculation: Let us say that Apple stock price has right swing (i.e. swing high) of 50 dollar in first triangle and left swing (i.e. swing high) of 50 dollar in second triangle. We can calculate the Expansion ratio as below:

E = 50/50 = 1.000

During calculation, you might be wondering what the right swing of the second triangle is. In fact, the right swing of the second triangle is identical to the left swing of first triangle. Hence, two neighboring triangles always share middle swing in between them.

Defining Profitable Patterns 3

After checking out retracement ratio and expansion ratio, you might be wondering why we use ratios to study patterns instead of some other quantities. Because ratio is scale independent, it is suitable to study fractal wave patterns. For example, in our ratio study, if price goes up 50 dollar and then goes down 25 dollar, then this triangle pattern has the retracement ratio 0.5 (R=0.5). Likewise, if price goes up 100 dollar and then goes down 50 dollar, then this triangle pattern has the retracement ratio 0.5 (R= 0.5). Even though the size of triangle is different, these two are the same pattern with retracement ratio 0.5. We say this as being independent to scale. Many other mathematical tools are not independent to scale. For example, assume that you are trying to study fractal wave patterns with sine and cosine wave. In sine and cosine wave, you have two basic quantities including the fixed time interval and price height.

With these two quantities, the two previous triangles would be defined as different structure because price height is different in the two triangles. In fractal wave, we have to deal with many repeating patterns in different size. For this reason, it is hard or almost impossible to study fractal waves using sine and cosine wave if they are depending on scale.

Defining Profitable Patterns 4

Profitable patterns can be jagged triangles and Jagged triangles can serve as good entries and exits for our trading. For example, several harmonic patterns with five points are in fact one big jagged triangle made from three small triangles.

If we have one big triangle made up from small three triangles, we can still calculate the retracement ratio for big triangle in the same way as in the individual triangle. However, it is useful to make note that this retracement was made up from three small triangles. Regardless of how many triangles inside big triangle, the formula to calculate retracement ratio is the same as before. You will divide the price height of right swing by the price height of left swing.

Closing Retracement Ratio = Right swing in first three triangles (Y0) / left swing in first three triangles (Y1)

Sample Calculation: Let us say that Facebook have right swing of 26 dollar over three small triangles and left swing of 41.2 dollar over three small triangles.

C = 26/41.2 = 0.631 (from triangle 0 to 2 or T0:3 using short notation)

Defining Profitable Patterns 5

Defining Profitable Patterns 6

In fact, we can have any number of small triangles inside big triangle. Let us say that we have five small triangles inside one big triangle. Then we will calculate the closing retracement ratio as below:

Closing Retracement Ratio = Right swing in first five triangles (Y0) / left swing in first five triangles (Y1)

Sample Calculation: Let us say that Facebook has right swing of 50 dollar over five small triangles and left swing of 42.67 dollar over five small triangles.

C = 50/42.67 = 1.173 (from Triangle 0 to 4 or T0: 5 using short notation)

Defining Profitable Patterns 7

Defining Profitable Patterns 8

As in the closing retracement ratio, we might need the expansion ratio for multiple of triangles too instead of two successive triangles. In fact, this sort of relationship is found often in Elliott Wave patterns. I call this quantity as Factored expansion ratio. The way we calculate the factored expansion ratio is identical to the previous expansion ratio formula. However, we need to specify which triangle is in consideration when we calculate this Factored expansion ratio.

For example, let us say that we have eight successive triangles in price series. We want to measure the expansion ratio of first triangle and last triangle.

Factored Expansion ratio = right swing in first triangle / left swing in eighth triangle.

Sample Calculation: Let us say that the right swing of the first triangle is 100 dollar and left swing of the last triangle was 100 dollar, then our Factored expansion ratio can be calculated as below:

F = 100/100 = 1.000 (triangle 0 by triangle 7 or T0: 1 by T7: 1 using short notation)

Defining Profitable Patterns 9

There are cases that are more complex too. For example, we might want to calculate the expansion ratio of first four triangles against last two triangles. Sounds complicated but the way we calculate the expansion ratio is as simple as right swing of first four triangles / left swing of last two triangle.

Sample Calculation: Let us say that the right swing of the first four triangles is 16.18 dollar and left swing of the last triangle was 10 dollar, then our Factored expansion ratio can be calculated as below:

F = 16.18/10 = 1.618 (triangle 0 to 3 by triangle 6 to 7 or T0: 4 by T6: 2 using short notation)

Defining Profitable Patterns 10

So far, we have introduced four quantities including retracement ratio, expansion ratio, closing retracement ratio and factored expansion ratio. Sometimes, to describe profitable patterns, we need to have multiple of these quantities in combinations. When you have to use multiple of these quantities, then you can just introduce lag operator. Set the latest quantity to Lag operator 0 and then set Lag1, 2, 3, etc to older quantities. For example, if you have two triangles and you want to describe the retracement ratio of these two successive triangles, then you can calculate retracement ratio as below:

R0 = Y0/Y1

R1 = Y1/Y2

Defining Profitable Patterns 11

Figure 5-10: Graphical representation of two successive retracement ratio

For example, if you have three triangles and you want to describe the retracement ratio of these three successive triangles, then you can calculate retracement ratio as below:

R0 = Y0/Y1

R1 = Y1/Y2

R2 = Y2/Y3

Defining Profitable Patterns 12

In summary, we can describe any profitable patterns using Retracement ratio (R), Expansion ratio (E), Closing Retracement ratio (C), and Factored expansion ratio (F). All the four quantities share the same formula:

R, E, C, and F = Price Height of Right Swing / Price Height of Left Swing

To understand these quantities, you do not need to understand a rocket science. As long as you understand that each triangle consists of right and left swing, rest of the calculation will be just followed. You just need to think about which triangle’s left and right swing you need to input for the calculation. Most of time profitable patterns including simple and complex one can be defined in using these four quantities.

After you have defined your patterns, you need to know which direction you need to trade. Recognizing the trading direction is simple with patterns. If the level of final point is above previous point, then the pattern tells you the bearish turning point that is sell opportunity. If the level of final point is below previous point, then the pattern is the bullish turning point that is buy opportunity. This rule applies to Fibonacci Price Patterns, Harmonic Patterns, Elliott Wave Patterns, and X3 Patterns in common.



About this Article

This article is the part taken from the draft version of the Book: Profitable Chart Patterns in Forex and Stock Market: Fibonacci Analysis, Harmonic Pattern, Elliott Wave, and X3 Chart Pattern.

https://algotrading-investment.com/portfolio-item/profitable-chart-patterns-in-forex-and-stock-market/

You can also use X3 Chart Pattern Scanner in MetaTrader to accomplish your technical analysis. Here is the product page for the X3 Chart Pattern Scanner. Enjoy the powerful non repainting and non lagging Harmonic Pattern, X3 Pattern and Elliott Wave Pattern indicator.

https://www.mql5.com/en/market/product/41993

https://www.mql5.com/en/market/product/41992

https://algotrading-investment.com/portfolio-item/profitable-pattern-scanner/

Below is the landing page for Optimum Chart (Standalone Charting and Analytical Platform).

https://algotrading-investment.com/2019/07/23/optimum-chart/

Patterns are the Good Predictor of Market Turning Point

To have the good skills in predicting turning point, it is important to understand why turning point occurs in the financial market. Now let us question backwards “Do we have any stock price in smooth growth curve or smooth declining curve?” Smooth curve or straight line is good because it is easy to predict their next movement. Unfortunately, we will never have this sort of easy situation for our trading.



Even though some company’s stock price grown up for last 10 years like Google (Alphabet Inc.), we will continuously see down price move (i.e. swing low) after up price move (i.e. swing high) and vice versa. To the chartist, this sort of move is defined as price swings or zigzag movement. The zigzag price path is due to both fundamental reason and psychological reason. People do not like if the stock price is over-valued or under-valued under the given fundamental of the stock. For example, if the company has the surprise earnings, then stock price can go up high. However, once people think it went too much, price would start to come down. People do not see attractive price if the stock price is going up too quickly in the short period. In this case, without too much valid reason, stock price can just come down. We are just scared to see anything goes too extreme psychologically. Likewise, if stock price is going down fast due to some bad fundamental news, in theory, we should not buy the stock. In practice there are some people think that stocks are cheap to buy. Hence, price start to make its own correction. Like this, financial market has the endless feedback loop ensuring the price is not moving in one direction. Instead, price will move down after bullish rally and price will move up after bearish rally. This mechanism forms the zigzag price path. Hence, stock and currency price series will continuously show turning point, either high to low or low to high. Financial trader will face much tougher choice between these alternating turning points.



So what are the good ways of handling the buy and sell decision in stock and currency market? Fortunately, you are not the only one suffering from this decision problem. Many pioneer traders visited the same question before. In their conclusion, to study this sort of zigzag price path, the best way is to look at the patterns that are made up from zigzag price path. Hence, we will be cutting out some of the patterns from the long price series and then we will exam the cut out patterns with a special microscope designed for this purpose. Many legendary traders opened up ways to study these patterns. Focus in the pattern study is to find repeating patterns that are able to capture the profit in good success rate. Fortunately, we have over 100 years of established methods to deal with this sort of complex price patterns.

Firstly, the simple and easiest method is the Fibonacci price patterns. In Fibonacci price patterns, we cut out the patterns made up from three or four zigzag points to predict the potential turning point, respectively for retracement and for expansion. The peculiar point to the Fibonacci price patterns is that we use Fibonacci ratios derived from Fibonacci sequence numbers. Common Fibonacci ratios used by traders include 0.382, 0.500, 0.618, 0.782, 1.000, 1.272, 1.618, etc.



The second method to study the patterns that are made up from zigzag price path is Harmonic Pattern. In harmonic pattern, we will cut out the patterns made up from four to five zigzag points to predict market turning point. The history of the harmonic pattern goes back to the Gartley’s book “Profits in the Stock Market” in 1935. At that time, Gartley described the trend reversal pattern, made up from five points, on page 222 of his book. The pattern become popular in 1990s (Pesavento and Shapiro, 1997). Since then, many traders developed the common interest in looking for the similar patterns described by Gartley’s book. Since harmonic pattern uses Fibonacci ratios, you can also consider Harmonic patter as an advanced Fibonacci price patterns loosely speaking.



The third method to study the patterns that are made up from zigzag price path is Elliott Wave theory. Unlike previous two methods exam the cut out patterns from the long price series, Elliott created the more general theory in studying zigzag patterns. This general theory is called Wave principle. The advantage of Elliott Wave theory is that it is comprehensive as the theory provides multiple trading entries on different market conditions. Disadvantage of Elliott Wave theory is that it is more complex comparing to other trading techniques.



The fourth method to study the patterns that are made up from zigzag price path is X3 Pattern framework. X3 Pattern framework is the latest pattern detection methodology. It lands on “RECF” pattern notation to define various profitable patterns in simple and intuitive manner. X3 Pattern framework allow you to define the patterns that are made up from zigzag price path in one unified pattern framework. In addition, X3 pattern framework allow you to explore the classic patterns and non-classic patterns that are not described in the Fibonacci price patterns, Harmonic patterns and Elliott Wave patterns. Once you have learned the basic logic of defining profitable patterns using X3 Pattern framework, you would be able to customize the existing patterns and to create new patterns to improve their trading performance.



About this Article

This article is the part taken from the draft version of the Book: Profitable Chart Patterns in Forex and Stock Market: Fibonacci Analysis, Harmonic Pattern, Elliott Wave, and X3 Chart Pattern.

https://algotrading-investment.com/portfolio-item/profitable-chart-patterns-in-forex-and-stock-market/

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Profitable Patterns in Financial Market

Price is the data recorded by financial exchange. The financial exchange distributes this real time price to trader electronically during market hours. Then trader will make buy or sell decision depending on their perception of the latest price. If they feel the price is low, then they will buy the currency or stock. If they feel price is too high, then they will sell the currency or stock. Once thing we need to know is that diversified reactions exists about good buying and selling price. We can have millions of different opinions about 200 dollar stock price for Facebook today. Some people will think that 200 dollar is good price to buy and some people will think the opposite. Some people might be neutral. Next price of Facebook will be determined by trading volume of buy and sell orders. If buy-trading volume is dominating over the sell-trading volume, then price will go up. If sell-trading volume is dominating over the buy-trading volume, then price will go down. You can think that each price recorded is in fact the record of the crowd reaction.

For our analysis, financial exchange also records the series of price in regular time interval like hourly, daily, or weekly, etc. Sometimes they record tick-by-tick data. They electronically store these historical data and distribute them to traders. Then trader uses these historical data to draw chart for further analysis of the price. In modern electronic trading environment, it is very rare to make buy and sell decision without looking at chart. Price series contain complex information. If we want to find out any useful information from price series, then we need to work backwards from price series into whatever information we need to seek. Extracting useful information from price series typically requires some mathematical tools.

Depending on what is our question, we need to apply different tools to exam price series. For example, if you want to know the common statistics for Facebook stock price, then you can calculate the mean, median, and standard deviation of the price series. If you want to find out good cycles to trade, then you need to apply Fourier transformation or some sort, to extract the cycles of Facebook price series. Likewise, if we want to find out profitable patterns, then we need to apply Peak Trough transformation or some sort to the price series. When we apply Peak Trough Transformation, we turn price series into the infinitely repeating triangles, which are called Fractal wave. Typically, Zig Zag indicator and Renko chart are used to turn price series into fractal wave.



Fractal or Fractal wave is commonly observable in nature like snowflake, in tree leaves, in heartbeat rate, in coastal line. Hence, many traders believe that the identifying profitable patterns in price series are the same as spotting natural order. By definition, Fractal wave is infinitely repeating self-similar patterns in time domain. The main regularity in Fractal wave is the shape of the pattern. Typically, this shape of pattern is referenced for some geometric shapes like triangle, circle, square, etc. In Fractal wave, we can have both strict self-similar and loose self-similar patterns. If the repeating patterns have the same geometric shape and all individual patterns have matching parameters in that shape, we call this as strict self-similarity. If repeating patterns have the same geometric shape but majority of individual patterns have non-matching parameters in that shape, then we call this as loose self-similarity. Fractal wave in Forex and Stock market price series have triangle as the geometric shape. However, individual triangle can be wider, narrower, longer, and shorter than other triangles. Hence, Fractal Wave in Forex and Stock market data possess the loose self–similarity. Loose self-similarity does not mean that all the triangles are non-identical in shape. Even in loose self-similarity, we can have some triangles in identical shape or at least within allowed range in precision.



First important characteristic of fractal wave is the infinite scales. In theory, repeating triangles in forex and stock market can have infinite variation of scales from very small to extremely large triangles. For example, one day we can observe one triangle formed in thirty seconds but another triangle can be formed in thirty days. In our pattern study, scale is an independent factor from geometric shape. As long as triangles are identical in shape, or within allowed range in precision, triangle formed in thirty seconds is treated as identical to the triangle formed in thirty days, regardless of their size. For some practical example, Fibonacci price pattern with 61.8% retracement formed in twenty-candle bar in hourly timeframe is an identical pattern to the other 61.8% retracement pattern formed in thirty six candle bar in daily timeframe.



Second important characteristic about Fractal wave pattern is that many small pattern are jagged together to make bigger patterns. For example, in triangular fractal wave as in financial market, bigger triangle will be made from many small triangles. In our pattern study, we often seek this sort of jagged patterns for our trading opportunity. Especially, in Harmonic pattern, Elliott Wave patterns, and X3 patterns, this sort of jagged pattern are commonly utilized to find the profitable patterns with good success rate.



About this Article

This article is the part taken from the draft version of the Book: Profitable Chart Patterns in Forex and Stock Market: Fibonacci Analysis, Harmonic Pattern, Elliott Wave, and X3 Chart Pattern.

https://algotrading-investment.com/portfolio-item/profitable-chart-patterns-in-forex-and-stock-market/

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