Automated Chart Pattern Recognition

Chart Patterns are formations created by the price action on a chart. They are one of the pillars of Technical Analysis, along with indicators, candlestick patterns and so on.

Some the most popular Chart Patterns are available on TrendSpider. The platform can automatically paint them on the charts. One can scan for the patterns — like "Find all the stocks from Russell 2K which have a Descending triangle on a Daily chart". One can also use Chart Patterns in Smart Checklists.

Our Chart Pattern recognition is focusing on actionable patterns only. We don't display patterns in the past. We discard ongoing patterns which don't seem to be respected by the price action any more. We discard patterns which are on their very early stages of development. We discard patterns which had been already "played out" shortly after the fact.

How to use Chart Patterns on TrendSpider

Think of our Chart Pattern detection as of your fellow advisor. It most cases it will be perfectly right. Sometimes it won't. But it never can decide for you. You should make your decisions anyways.

This means that a typical way for using Chart Patterns on TrendSpider is as follows:

  1. Scan to find charts with a given pattern emerging (or with price bouncing off it e.t.c.).
  2. Select the charts which have formations you do agree with.
  3. Proceed with the analysis (or paint rays and create alerts e.t.c.)

Identifying chart patterns (just like identifying trends) is a discipline where there's a room for being subjective. In some cases one trader would insist that there's a triangle on a chart, and the other one won't agree.

In the end, what matters is not "whether you follow a definition strictly" (even if it exists). What matters is whether the pattern is being confirmed (respected?) by the price action. That's what we're using when identifying patterns. We use formal definitions, common sense and a huge portion of additional logic and math atop of them.

Important note on Chart Types: Consider using Chart Patterns on different chart types. Patterns identified on Heikin Ashi or a Line chart can be way cleaner and sometimes would give you a signals you might miss otherwise.

Chart Patterns on Charts

In order to see Chart Patterns on Charts, you should click on a ... button next to the Chart Patterns in your top toolbar. Then, select the patterns you'd like to see. That's it.

Some of the Chart Patterns do have settings (just like some indicators do have input parameters). You can adjust them by clicking on ... button for the Chart Pattern in the Chart Key.

Scanning for Chart Patterns

You can scan for Chart Patterns, on any markets, any chart types and any time frames. In example, you can find all the charts which have bounced off a lower line of a Descending Triangle on a 1 hour chart.

Using Chart Patterns in scanning is pretty straightforward and is very similar to using Indicators. Besides of scanning for particular interaction of a price and a pattern, you can also scan for charts which have a recent relevant pattern disregarding of what the last candle is doing. if you want to do so, you can arrange your criteria like Daily Triangle, Ascending Exists.

You can also scan for Indicators interacting with the Chart Patterns. In example, you can find all the charts where Bollinger Bands is squeezed into a symmetrical triangle.

Important note on scanning: when scanning for Chart Patterns, please do prefer enabling the Current Candle checkbox in your scanner. Doing so will guarantee consistency between your charts and results of scanning.

Chart Patterns in Alerts and Strategy Tester

At a current stage backtesting or alerts on Chart Patterns are not supported. You can work around the Alerts limitation by painting a Ray annotation atop of a pattern you like and then creating an alert on it.

Known limitations of Chart Patterns

A. Alerts and backtesting are not supported for Chart Patterns.
B. There could be false positives of false negatives in scanners in case if you're not using the "Current candle" option.
C. Chart Patterns paited on charts do not respond to real time updates (i.e., their lines do not extend)
D. If you open a chart after a while than a Chart Pattern which used to be there might go away. That might happen if our logic decides that this Chart Pattern is not as relevant any more as it used to be.

Chart Patterns supported on TrendSpider

Triangle, Ascending

This kind of a Triangle should be formed by a horizontal resistance level at the top and a diagonal trend line at the bottom. We do allow some "not perfectly horizontal yet still very close" lines for the Top line, as we've found that resulting in identifying more of patterns of a decent quality.

Discarding stale patterns: We'll only detect Ascending Triangle which is either still forming or had been just "played out" recently. We discard Triangles which have a point where lines cross either too far in the future or too deep in the past.

Input parameters: Asceding Triangle has only 1 parameter: Time Span. This parameter can be either Short Term or Long Term. It regulates what kind of triangles should be preferred, by adjusting a number of low-level technical inputs for the Triangle Recognition logic (like length of some Fractals and other indicators and so on). Please note that depending on a chart, both parameters might yield the same triangle (in case if it's so good that the math prefers it anyways).

Triangle, Descending

This kind of a Triangle should be formed by a horizontal support level at the bottom and a diagonal trend line at the bottom. We do allow some "not perfectly horizontal yet still very close" lines for the Bottom line, as we've found that resulting in identifying more of patterns of a decent quality.

Discarding stale patterns: The same as for Ascending Triangle

Input parameters: The same as for Ascending Triangle

Triangle, Symmetrical

This kind of a Triangle should be formed by 2 diagonal trend lines, one from the top and 1 from the bottom. In our rules we prefer triangles which are either perfectly (or "almost perfectly") symmetrical. Formations which look like a triangle but which are too far from being symmetrical are discarded.

Discarding stale patterns: The same as for Ascending Triangle

Input parameters: The same as for Ascending Triangle

Oct 18, 2022

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