Monday, April 18, 2011

PatternDNA Pattern of the Week: GGFGB

This week's pattern was drawn from Nokia (NOK). It featured four bearish days followed by a bullish day.

What was unusual about this pattern was the poor short term performance, offset by a stronger long term performance.
Match No. of Patterns
% Win
% Win
% Win
Average Return
Per Trade (> 5 day)
Weakest 183 50 54 56 5.1
Weak 137 52 52 58 6.1
Neutral 69 46 43 49 6.6
Strong 24 51 42 33 5.5
Strongest 0 n/a n/a n/a n/a

Given the coin-toss probabilities over the 5-day outlook, bar the 67% probability for a lower close on the fifth day on the Strong Match, it's not a pattern to generate short term interest.

However, when the Average Return Per Trade was considered (Average Return Per Trade assumes an initial stop of 10%, raised to 5% off the price reached on a 15% gain. Ultimate Profit Target of 25%) the performance of the pattern improved. The win percentage of the pattern when applied with the aforementioned risk strategy, ranged from 58% at the Strongest match to 65% at the Neutral match. The latter match also having the Average Return Per Trade.

Using the Neutral match and running a market scan returned 61 matches. One such match was for Marshall and Ilsley (MI).

Zignals Chart Image

With the stock trading above its 50-day MA and 200-day MA (and the 50-day MA riding above its 200-day MA) there is good reason for Marshall and Ilsley to be one of the 65% to close in profit (and if it is, the average return from winning trades is 13.4%).

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Zignals PatternDNA from Declan Fallon on Vimeo.

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