What does PatternDNA offer?
The application works on a number of different levels. In default mode it offers an assessment of probable performance in the current 5-day trading pattern for a given stock, commodity or currency pair. For example, the outlook for MSFT based on the past 5-days trading is as follows:
How are these figures calculated? The trading pattern of the past 5-days is compared to similar patterns (based on the Match Level) in stocks drawn from the selected stock list (in this case 18 U.S. stocks).
In the above case, this pattern closed higher 64% of the time on the next day close, but ultimately the pattern led to a lower close 77% of the time after five days. So while MSFT stands a good chance of closing higher today, there is a stronger chance that by this time next week it will finish below $27.03.
But what of the "Pattern & Stop" figures? This takes aspects of the TradeTimer (and Strategy Builder) and measures the cumulative return of the Pattern over the look back period, in this case the previous 12 months. So, if you traded this Pattern using an initial 15% Target and Stop, with a Trail Target and Stop of 10% and 5% respectively for a goal of 25% you would look to make an average return of 8.7% trading this Pattern in the 18 stocks of the stocklist over the previous 12 months.
If you click 'List Results' you can view how the Pattern performed for the listed stocks. In the case of MSFT the matched Pattern in May brought a 4.8% return.
The 'List Results' will give you an idea of the range of expectation. For example, the single match for CSCO in April 2009 led to a 14.2% loss, but the five matches in AAPL offered a 39.8% gain!
What else can PatternDNA do?
PatternDNA is a dynamic application to help you find trading opportunities in the market. You can look at a chart and select patterns up to 10-days long. You can then search for similar matches in the S&P500. You can also create your own Pattern sequence using the letters.
The new Pattern we have selected had 12 matches in our 18 stocks using a 'Neutral' match level. When used with out Target & Stop strategy the average annual (cumulative) return was 9.5% with a staggering 87.5% win percentage. If we notched the match level to 'Strong', the number of Patterns found dropped to 3, but all 3 of these Patterns were profitable with an annual cumulative return of 16.6%.
What is also interesting about this Pattern is the short term 1-, 2- and 5-day performance is poor. As a 'Neutral' match, the Pattern closed higher only 27% of the time after a day and 33% after five (out of a sample 12 matches). As a 'Strong' match the next day closed only higher 11% of the time and was still down in 84% of cases after five days (out of a limited 3 matches).
But isolating a good Pattern is only half the story, next you need to Scan the Market to find them. Scanning for the Pattern, "GEGJBCEIJF", using a 'Strong' match returned just one hit - BMY.
Even in this case, three of the past four matches in for this Pattern in BMY closed in profit, so there is a precedent for a positive return.
But PatternDNA does more!
If you have a profitable Pattern you will want to be alerted when it happens again. You can do this by Saving your Pattern and using this saved Pattern as a rule in the Strategy Builder. When the Pattern occurs in the list of stocks on which your strategy is built, you will get a signal alert.
So PatternDNA offers three quite unique functions: [1] As a metric for measuring performance of a stock going forward, [2] To create and search for Patterns in the market and [3] A tradable signal around which a trading strategy can be built.
Try it out today with our free Preview; upgrade and get PatternDNA plus TradeTimer for just $10 a month.
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Dr. Declan Fallon, Senior Market Technician for Zignals.com, offers a range of stock trading strategies via his Zignals home page. Each Zignals member has an unique home page which they can share with friends and clients to sell their strategies. Zignals offers a full suite of financial services including price and fundamental stock alerts, stock charts for Indian, Australian, Frankfurt, Euronext, UK, Ireland and Canadian stocks, tabbed stock quote watchlists, multi-currency portfolio manager, active stock screener with fundamental trading strategy support and trading system builder. Forex, precious metal and energy commodities too. Build your own trading system and sell your trading strategy in our MarketPlace to earn real cash. Read what others are saying about Zignals on Investimonials.com. JOIN US TODAY - IT'S FREE!
