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Price Action and Pattern

Price action and patterns are fundamental concepts in technical analysis that traders use to analyze market movements and make trading decisions. Here’s how they apply to various methodologies like Harmonic Patterns, Chart Patterns, Elliott Wave Theory, and Support and Resistance:

Price Action:

Definition: Price action refers to the movement of a security’s price over time, as depicted on a chart. It reflects the collective behavior of market participants, including buyers and sellers, and encompasses all factors influencing price, such as supply and demand dynamics, market sentiment, and fundamental news.
Application: Traders analyze price action to identify trends, reversals, and significant price levels.
Price action analysis involves studying candlestick patterns, chart patterns, and trendlines to gauge market sentiment and make trading decisions. By understanding price action, traders can anticipate potential support and resistance levels, breakout and reversal patterns, and market trends.

Harmonic Patterns:

Definition: Harmonic patterns are specific price formations that adhere to Fibonacci ratios and geometric patterns. They include patterns such as the Gartley, Butterfly, Bat, and Crab patterns.
Application:Traders use harmonic patterns to identify potential reversal or continuation points in the market.
Harmonic patterns help traders anticipate turning points based on the convergence of Fibonacci retracement and extension levels. By recognizing harmonic patterns, traders can enter trades with defined risk and reward parameters and manage their positions accordingly.

Chart Patterns:

Definition: Chart patterns are visual representations of price movements on a trading chart. They include patterns such as head and shoulders, triangles, flags, and pennants.
Application:Traders use chart patterns to identify potential breakout or reversal points in the market.
Chart patterns provide visual cues about market sentiment and price dynamics, helping traders anticipate future price movements. By recognizing chart patterns, traders can establish entry and exit points, set stop-loss orders, and manage their trades effectively.

Elliott Wave Theory:

Definition: Elliott Wave Theory proposes that market movements unfold in repetitive wave patterns, consisting of impulse waves (trend-following) and corrective waves (counter-trend).
Application:Traders use Elliott Wave Theory to analyze market cycles and forecast future price movements.
Elliott Wave patterns help traders identify potential turning points and anticipate the direction of the next market move. By understanding Elliott Wave patterns, traders can develop trading strategies based on wave counts, Fibonacci ratios, and wave relationships.

Support and Resistance:

Definition: Support and resistance levels are price levels where buying and selling pressure converge, creating barriers to price movement. Support is a price level where buying interest exceeds selling pressure, while resistance is a price level where selling interest exceeds buying pressure.
Application:Traders use support and resistance levels to identify potential entry and exit points, as well as to set stop-loss and take-profit orders.
Support and resistance levels help traders gauge market sentiment and anticipate potential turning points in the market. By recognizing key support and resistance levels, traders can adjust their trading strategies and manage their risk effectively.

In summary, price action and patterns play a crucial role in technical analysis across various trading methodologies. Whether traders are analyzing harmonic patterns, chart patterns, Elliott Wave Theory, or support and resistance levels, understanding price action and patterns helps them make informed trading decisions and navigate the complexities of the financial markets.


https://algotrading-investment.com/2020/03/22/price-action-and-pattern-trading/

Geometric Prediction, the Bible for Successful Trading


Order is present not only in the universe but in human world too. We can find order everywhere including fashion, music, architecture, financial market, arts, and disease. Order can be present in our world as the different form of regularity. For example, they could be present as symmetry, balance, structure, repeating, cycle, or trend. Recognition of these regularities in our world makes our life meaningful and provides us enhancing experience. Sometimes, recognizing regularity brings us new scientific discovery and technological development leading to better life. For example, once we can model the blueprint of virus gene, we can create vaccine for virus by changing the blueprint. Hence, recognizing genetic structures of deadly virus can save millions of our life each year from measles, mumps, Corona Virus, and influenza. Another important but interesting example is recognizing geometric shapes in objects. This ability is used almost everywhere in our life from designing house, creating CAD model of a car, drawing portrait, and creating 3D animation. Regularity is attractive. We love symmetry and balance. Hence, from child hood we are often attracted to play with the geometric shapes like triangle, rectangle, and circle. When we grow up, some of us are capable to apply these skills to more complex task as in architecture, arts, and even in the financial trading.

Although the recognition skills can vary from individual to individual, we can tell that almost everyone has the skills. Let us take some example of this in ourselves. Now imagine that you are a single adult male at the age of late twenties. Say that you are looking for marriage. In selecting your marriage partner, you can consider multiple of factors. Physical attractiveness is one of them. She might be a colleague from the same company or a friend from the same school or a friend from the same town. You might know her for a short time or for a long time. During the date with her, you will spend a lot of time to talk to her. Voluntarily and involuntarily, you will use your recognition in many different ways to find out some attractiveness from her. For example, you might use your recognition in finding attractiveness in her face.

What is the classic wisdom behind the face attractiveness? In his writings on human anatomy, Leonardo da Vinci described that face can be divided into three equal thirds. What is this equal thirds means? It tells the proportion in your face in horizontal dimension as shown in Figure 1.1-1.

In vertical dimension, face can be divided into equal fifth. The width of eyes will represent two fifth and width of nose will represent one fifth. Figure 1.1-2 represents the proportion in vertical dimension.

Most of time, this sort of recognition is taking part involuntarily in our brain. However, face attractiveness is one of the most frequently used recognition when we fall in love with others. Hence, we can tell that one of the important factor for face attractiveness is proportion within face or ratio between facial features. We use proportion and ratio to find regularity in our face, for example, symmetry or balance.

Next thing we can consider in the face attractiveness is the size of certain facial features. For example, size of eyes or lips can play an important role. Some man love a girl with big eyes. Plastic surgery to make eyes bigger is one of the most frequently performed procedure in the developed countries like USA, Japan and UK.


https://algotrading-investment.com/2020/04/05/geometric-prediction-the-bible-for-successful-trading/

Turning Point, Peak, Trough, Swing High, Swing Low, and ZigZag


To recognize the geometric shape in our chart, we need a measurable object. In financial market, the geometric recognition is done in the two dimension of price and time. Price is usually placed in Y axis and time is usually placed in X axis. In financial market, we recognize the geometric shapes in the candlestick chart. Some might use range bar chart. In this book, we will be using candlestick chart most of time because they are easy to read.

When we look at the plain chart, we can recognize almost nothing. It is because we do not know which object we will be studying in the continuous price series. For an object to be measurable, the object requires boundary or outline. Hence, to recognize any geometric shapes in our chart, we need a good logic of dividing the continuous price series into some measurable objects. Typically, it is best to start with Peak Trough Analysis.

In Peak Trough Analysis, we define peak and trough in an alternating manner. The analysis will start from oldest price data to latest price data. If we start with peak, then we will detect trough, peak, trough, peak, and so on to the right. If we start with trough, then we will detect peak, trough, peak, trough, and so on to the right. Each peak and trough requires having the certain distance in price and time as shown in Figure 1.2-2. Doing this manually could be quite tedious. Fortunately, there is a Zigzag indicator available everywhere to do this task automatically. At the same time, we provide Peak Trough Analysis free for audience of this book. Please refer to the downloading guide for Peak Trough Analysis tool in this book.


https://algotrading-investment.com/2020/04/06/turning-point-peak-trough-swing-high-swing-low-and-zigzag/

Fractal Wave, Mother Wave, and Child Wave

Once we have transformed the price series into triangles using Peak Trough Analysis, we are almost ready to study the price patterns using the ratio and size variable. However, before we do that, you need to understand these triangles generated from Peak Trough Analysis are Fractal Pattern. In Fractal Pattern, the same or similar geometric shape is repeating infinitely in different scales. In another words, with Fractal pattern, we are likely to see the same or similar pattern when we magnify the part of pattern. In the Romanesco Broccoli, the smaller piece, if they are broken off from the bigger piece, do look like the big piece. Like this, in Fractal Pattern, the same or similar patterns are occupying the entire structure of an object.

There are few different types of Fractal Patterns. When the same geometric pattern is repeating, we call this as a strict self-similarity. For example, Sierpinski triangle is good example of strict self-similarity in Fractal pattern. In Sierpinski triangle, the triangle is continuously expanding to build bigger triangle. As we magnify any part of Sierpinski triangle, we see the identical triangles.

On the other hands, fractal pattern can have a loose self-similarity structure. For example, the simplest form of loose self-similarity can be found in coastline. As we magnify a segment of coastline, we do not expect to see an identical copy of original coastline but rather similar shapes. Instead, we can observe that the same statistical properties are preserved across scales. In nature, loose self-similarity is more common.

As you might guess, financial market represents fractal pattern with the loose self-similarity. For example, when we apply the Peak Trough Analysis, the triangles are not identical but they are rather similar. As you can see from Figure 1.3-4, each triangle is not strictly identical but they are triangles with different angles. Typically, fractal patterns in nature expand its geometry in two or three dimension in space. In the financial market, the fractal patterns are expanding in the two dimension of price and time. Hence, fractal pattern in the financial market can be considered as fractal wave. In another words, it is some sort of cycles. This inclusion of time dimension makes the fractal pattern in financial market special. What this means is that to predict financial market, we need to consider size and ratio in time dimension too as well as price dimension.

https://algotrading-investment.com/2020/04/06/fractal-wave-mother-wave-and-child-wave/

Fibonacci Probability Graph


In the first chapter of this book, we have introduced three prediction equations. The good market prediction is the one that takes account for both statistical regularity and geometric regularity together. On top of that, if you can add surrounding knowledge around the market, this could be the most complete form of prediction. Surrounding knowledge around market is the information that describes the current market condition outside statistical and geometric regularity. This can include fundamental and political knowledge. The topic of fundamental and political knowledge is comprehensive. We will not cover them here. In this book, we will focus on the technical version of Geometric Prediction equation mostly. You can heavily resource the technical prediction taught in this book for your trading. However, you should never block yourself from the latest information source for the market news and fundamental data release in any case. Below is the three version of the geometric prediction equations.

Geometric Prediction = size + ratio + surrounding knowledge around object where size and ratio is measured from geometric shape.
Geometric Prediction (General version) = statistical regularity + geometric regularity + surrounding knowledge around object
Geometric Prediction (Technical version) = statistical regularity + geometric regularity
Geometric market prediction requires recognizing statistical regularity and geometric regularity in chart. To aid your market prediction, it is possible to devise a tool. We can create the most intuitive tool by combining the functionality of Fibonacci retracement with probability. The idea is that probability will help us to recognize the statistical regularity whereas Fibonacci retracement will help us to recognize the geometric regularity. We can call this tool as Fibonacci Probability Graph.

In the devised Fibonacci Probability Graph, Y axis indicates the amplitude of fractal wave in price dimension and X axis indicates the wavelength of fractal wave in time dimension. In another words, Y axis indicates the turning point probability in price dimension and X axis indicates the turning point probability in time dimension.

https://algotrading-investment.com/2020/04/06/fibonacci-probability-graph/

Mother Wave and Child Wave with Joint Probability


When we try to apply the geometric prediction equation, we need to remember one specific point about financial market. Price dynamics in the financial market are fractal. By definition, in fractal pattern, the same or similar geometric shape is repeating infinitely in different scales. We need to pay attention to the fact that we could have a confluence between different scales. It is like two rivers meeting to form a bigger river in concept. In such a case, we can expect stronger market movement (Figure 4.2-1).



In fact, this concept is not new. We have already touched the concept through the deterministic cycles in previous chapter. For example, mathematically we can find the global turning point, where the turning point of small and large cycles meets together (Figure 4.2-2). Unfortunately, in stochastic cycles, we do not have fixed wavelength and amplitude. We can only estimate the turning point probability based on current amplitude and wavelength.



We can only tell if current amplitude and wavelength could become a turning point with some measured certainty or uncertainty. However, we can never be sure for 100%. If each cycle only provides the probability to become peak or trough, then how can we estimate the confluence between small and large cycle of stochastic cycles? Probably, one way to do is calculating the joint probability between small and large cycles.



To visualize this joint probability concept in our trading, consider we have one small cycle and one big cycle. Say that three fractal triangles in the small cycle are the child waves of one fractal triangle in the big cycle. In such case, we can calculate two turning point probability, one for child wave (Triangle 0), and the other one for mother wave (Triangle M0). Firstly, we can calculate the turning point probability for the Triangle 0, the child wave, based on its amplitude and wavelength (Figure 4.2-4).


https://algotrading-investment.com/2020/04/07/mother-wave-and-child-wave-with-joint-probability/

Predicting Volatility with Turning Point Probability

One important advantage of using turning point probability in financial market is that we can also predict the volatility of the price movement. This is useful when we need to decide our stop loss and take profit targets in our trading.

We can consider three different cases. Firstly, we can expect neutral market sentiment, where sell and buy pressure is nearly equal. Secondly, we can expect the market with bullish sentiment, where often amplitude of bearish movement could be smaller than the amplitude of bullish movement. Thirdly, we can expect the market with bearish sentiment, where often amplitude of bullish movement could be smaller than the amplitude of bearish movement. Any of these three cases can happen when we make either buy or sell entry. Hence, we will analyse these three different cases respectively for buy and sell entry.

Let us start with the case when we make the buy entry. When we try to make buy entry, the market could be surrounded with neutral sentiment. In this case, the sensible profit target could be the mean amplitude. In theory, mean amplitude is the price movement, at which we have 50% turning point probability. If you believe the neutral sentiment after your buy entry, then it is good to limit your take profit target around the mean amplitude. You can measure the amplitude from Fibonacci Probability Graph as shown in Figure 4.3-1.

https://algotrading-investment.com/2020/04/07/predicting-volatility-with-turning-point-probability/

Support and Resistance Trading with Turning Point Probability
In this chapter, we will show you how to combine statistical regularity and geometric regularity to trade with the most popular trading technique, the support and resistance. In the support and resistance, the geometric regularity is recognized when several peaks (or troughs) are aligned within one straight line. Especially, when three or more peaks (or troughs) are hitting the path of one straight line, it is hard to take this as the random event. When we add the statistical regularity in our decision-making process, we can even reduce the uncertainty further. Hence, we can improve our accuracy.

There are two different cases for our trading. Firstly, we can pick up the continuation pattern for trading. In the continuation pattern, we trade in the same direction of the slope of geometric support and resistance line. Continuation pattern is useful when we anticipate the continued momentum in the current trend direction. Secondly, we can try to pick up the reversal pattern. In the reversal pattern, we trade in the opposite direction of the slope of the geometric support and resistance line. Reversal pattern is useful when we believe that current market trend stayed for the prolonged period and new trend should be born in the opposite direction.

https://algotrading-investment.com/2020/04/07/support-and-resistance-trading-with-turning-point-probability/

Harmonic Pattern Trading with Turning Point Probability
In this chapter, we will show you how to combine statistical regularity and geometric regularity to trade with Harmonic patterns. In Harmonic Pattern trading, the geometric regularity is recognized with the ratio when several neighbouring fractal triangles are form the certain structure. Once, geometric regularity is recognized by detecting Harmonic Pattern, we detect the statistical regularity with Fibonacci Probability graph to reduce the uncertainty further. Hence, we can improve our accuracy for our trading.

As in the support and resistance, we can consider continuation pattern and reversal pattern for harmonic pattern trading. In continuation pattern, we try to find the harmonic pattern giving us the trading entry in the current trend direction. As you might expect, in the case of continuation pattern, the counter trend movement (i.e. correction) is weak. This will result in the small probability in the joint probability matrix. Hence, we have less conservative criteria in choosing our entry. For example, we will consider the probability 50% as the minimum cut for the continuation pattern.


https://algotrading-investment.com/2020/04/07/harmonic-pattern-trading-with-turning-point-probability/

Here are some more tips about Falling Wedge Pattern and Rising Wedge Pattern to trade in Forex market in regards to the turning point. The Falling Wedge Pattern and Rising Wedge Pattern are two common chart patterns used in technical analysis to predict potential price movements. Let’s delve into each pattern and discuss their turning point probabilities:

Falling Wedge Pattern:
Description: The Falling Wedge Pattern is a bullish continuation pattern characterized by a series of lower highs and lower lows, converging toward a point. It resembles a narrowing triangle pointing downwards.
Turning Point Probability: The Falling Wedge Pattern typically appears during a downtrend and signals that the downtrend may be losing momentum. Traders anticipate a potential reversal in the direction of the prevailing trend when the price breaks out above the upper trendline of the wedge. The turning point probability is higher when the breakout is accompanied by increased volume, confirming the strength of the reversal.

https://algotrading-investment.com/2020/04/07/falling-wedge-pattern-and-rising-wedge-pattern-with-turning-point-probability/

The “profitable chart pattern” refers to specific formations or configurations observed on price charts that have historically demonstrated a higher probability of resulting in profitable trading opportunities. These patterns are identified through technical analysis, which involves studying historical price movements and patterns to forecast future price direction.

A profitable chart pattern typically exhibits certain characteristics:

Reliability: Profitable chart patterns have a track record of accurately predicting future price movements more often than not. Traders rely on the consistency of these patterns across different time frames and market conditions.
Clear Signal: A profitable chart pattern provides a clear indication of when to enter or exit a trade. It usually has defined criteria for identification, making it easy for traders to recognize and act upon.
Risk-to-Reward Ratio: Successful chart patterns often offer a favorable risk-to-reward ratio, meaning the potential profit from a winning trade outweighs the potential loss from a losing trade. This helps traders manage risk effectively.
Confirmation: Many profitable chart patterns are confirmed by other technical indicators or market conditions, adding to their reliability. Confirmation may come from volume analysis, momentum indicators, or trend analysis.
Applicability Across Assets: Some chart patterns are applicable across different financial instruments, such as stocks, forex, commodities, and cryptocurrencies. This universality increases their appeal to a wide range of traders.

https://algotrading-investment.com/2020/02/16/profitable-chart-patterns-in-forex-and-stock-market-on-google-play-book-and-google-book-now/

Turning Point Probability (TPP) is a concept used in technical analysis to assess the likelihood of a price reversal at a certain point in a financial market, which can be used with Harmonic Pattern, Elliott Wave pattern, and X3 pattern. It’s often utilized in conjunction with various patterns like Harmonic Patterns, Elliott Wave Patterns, and X3 Patterns to identify potential turning points in price movements.

Harmonic Patterns: Harmonic patterns are geometric price patterns that use Fibonacci ratios to identify potential reversal points in the market. Common harmonic patterns include the Gartley, Butterfly, Bat, and Crab patterns. Turning Point Probability in harmonic patterns involves analyzing key Fibonacci retracement levels, confluence zones, and the symmetry of the pattern to gauge the likelihood of a price reversal occurring at those levels.

https://algotrading-investment.com/2020/02/21/trading-harmonic-pattern-elliott-wave-pattern-and-x3-pattern-with-turning-point-probability/

Equilibrium Fractal Wave (EFW) is a technical analysis tool used by traders and analysts to identify potential price reversals and trends in financial markets. Equilibrium Fractal Wave is based on fractal geometry and the concept of equilibrium, aiming to capture the cyclical nature of market movements.

Here’s a breakdown of the key components and principles of Equilibrium Fractal Wave:

https://algotrading-investment.com/2020/01/28/introduction-to-equilibrium-fractal-wave-analytics/

Harmonic Pattern Book, often referred to as “Harmonic Patterns,” is a trading strategy based on identifying specific price patterns in financial markets. These harmonic patterns are believed to have predictive value for future price movements, and traders use them to make buy or sell decisions.

The concept of harmonic patterns was popularized by H.M. Gartley in his book “Profits in the Stock Market,” published in 1935. Gartley introduced what is now known as the Gartley pattern, which is one of the foundational harmonic patterns.

https://algotrading-investment.com/2020/01/30/guide-to-precision-harmonic-pattern-trading-book-on-google-play-book-and-google-book/

MetaTrader 5 (MT5) platform is a popular choice among traders for its advanced features and flexibility in trading various financial instruments. Within MT5, indicators play a crucial role in technical analysis, helping traders make informed decisions about market trends and potential entry or exit points. The “Great MetaTrader 5 Indicator List” is likely a list of indicators available for use within the MetaTrader 5 platform. These indicators can vary widely in terms of their functions, complexity, and effectiveness in analyzing the market. Some common types of indicators found in such lists include:


https://algotrading-investment.com/2020/02/06/great-metatrader-5-indicator-list-2020/

The Fractal Moving Average (FRAMA) is a technical indicator used in financial markets, including Forex, to analyze price movements. It combines aspects of both fractal geometry and moving averages to provide a smoother and more responsive trend-following indicator.

Here’s how it works:

Fractals: Fractals are geometric patterns that repeat at different scales. In trading, fractals refer to patterns in price charts where there are at least five bars, with the highest high in the middle and two lower highs on each side. Similarly, for a downward fractal, there are five bars with the lowest low in the middle and two higher lows on each side.
Moving Average: A moving average is a calculation used to analyze data points by creating a series of averages of different subsets of the full data set. It smoothens out price data to identify trends over a specified period.

https://algotrading-investment.com/2020/02/14/fractal-moving-average-indicator-free-metatrader-indicator-release/

Turning point probability refers to the likelihood or chance of a reversal occurring in a financial market at a specific price level or time. It involves analyzing various factors, such as historical price data, market sentiment, and technical indicators, to assess the probability of a trend reversal. Many trading strategies or statistical algorithms predicts the turning point to achieve the good buy and sell decision for the trader in Forex and Stock market. For example, Fibonacci trading, Support and resistance trading, Harmonic Pattern, Elliott Wave pattern and X3 Chart Pattern are concerning the prediction of turning point. Because the turning point prediction provides the most usable profitable range in our trading, this is inevitably popular trading strategy among trader. To help your understanding on the market cycle in the financial market, we will break down the complex subject into few simpler one in the context of making buy and sell decision in Forex and Stock market. These 7 points are the essential information you need to understand when you want to make a good buy and sell decision in Forex and Stock Market.

https://algotrading-investment.com/2019/12/28/probability-grid-to-predict-turning-point/

Price breakout pattern scanner is very unique tool in the market because this pattern scanner have built in feature for Smart Renko inside. Before using the Renko Feature, let us cover what is renko chart first in Forex and Stock market context. The relationship between a Price Breakout Pattern Scanner and Smart Renko can be complementary in terms of technical analysis and trading strategies, particularly in identifying breakout patterns and smoothing price movements.

https://algotrading-investment.com/2019/12/29/price-breakout-pattern-scanner-and-smart-renko-2/

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