Pattern recognition is the search and identification of recurring patterns with approximately similar outcomes. This means that when we manage to find a pattern, we have an expected outcome that we want to see and act on through our trading. For example, a double top/bottom pattern is a classic technical pattern that signals an imminent trend reversal. The literature differs on the predictive ability of this famous configuration. In this article, we will discuss an objective pattern that can help find breakouts as opposed to reversals. I say objective because it has clear rules unlike the classic patterns such as the head and shoulders and the double top/bottom.
I have just published a new book after the success of New Technical Indicators in Python. It features a more complete description and addition of complex trading strategies with a Github page dedicated to the continuously updated code. If you feel that this interests you, feel free to visit the below link, or if you prefer to buy the PDF version, you could contact me on Linkedin.
The Book of Trading Strategies
Amazon.com: The Book of Trading Strategies: 9798532885707: Kaabar, Sofien: Books
The Fractal Pattern
The Fractal pattern is a recurring chart configuration consisting of a minimum of five consecutive price bars. An up fractal is where the middle bar is the highest. This means that the middle bar must have a higher high than the two preceding bars and also the two following bars, while a down fractal is where the middle bar is the lowest. This means that the middle bar must have a lower low than the two preceding bars and also the two following bars.
The perfect fractal pattern looks like a V for a down pattern and an inverted V for a down pattern. While other occurrences may happen, the perfect fractal pattern is the…