Chart patterns are a part of the foundation of technical analysis and are one of the most popular methodologies used by traders to predict future price variations.
Chart patterns are governed by precise identification guidelines and it is important to effectively recognize the presence of a specific pattern. Since this recognition process can be subjective, we designed a robust and efficient algorithm for the detection of traditional chart patterns, saving users valuable time.
In this post, we describe how to effectively use the Automatic Pattern Detection inside our main toolkit, Lux Algo Premium.
Using The Pattern Detection Feature
The Automatic Pattern Detection can be enabled within the Lux Algo Premium toolkit directly from SR Mode.
When enabled, a new cell on the dashboard will appear showing the current detected pattern. When no patterns are detected the dashboard will indicate the absence of a pattern and dashed lines will be displayed that can be used as support and resistance.
The Pattern Detection feature at the time of this publication can detect the most commonly traded chart patterns, including:
Rising/Falling Wedges
Ascending/Descending/Symmetrical Triangles
Head And Shoulders
Inverse Head And Shoulders
Double Tops/Bottom
Note that the Pattern Detection algorithm depends on the current SR significance selected. Higher SR significance aims to return longer-term pattern structures.
Examples
Below are some examples of detected chart patterns using the Automatic Pattern Detection.
Rising Wedge
Falling Wedge
Ascending Triangle
Descending Triangle
Symmetrical Triangle
Head & Shoulders
Inverted Head & Shoulders
Double Top
Double Bottom
Tips
Once you have noticed a promising detected pattern, it is important to look at various other factors to gain confidence on its validity, as well as having a good plan in order to trade it.
You can see if an ongoing pattern requires your attention by looking at indicators or possible patterns on lower/higher timeframes and checking if this information lines up with the ongoing pattern as well.
Certain patterns require certain volume trends in order to asses their validity. Some require down-trending volume, others require up-trending volume, and some require significant volume during a breakout.
It is possible to set take profits and stop losses when trading chart patterns using measure rules. Measure rules have been described by Bulkowski for several patterns.
We have an ongoing series about classical and more exotic patterns that you can read in order to understand them at a deeper level with education on identification rules, measure rule, and causes:
What is the indicator Name Automatic Pattern Detection?
Femi78
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Do those patterns activate themselves once it detects some momentum or do I have to set them up myself?
LuxAlgo
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@Femi78, Yep they activate automatically on your chart as the indicator detects them and display in the dashboard when confirmed based on the SR Significance setting.
Femi78
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@LuxAlgo, Thank you. Which of the package do I have to subscribe to be able to access those patterns? I can't register either on your website. Is it invite-only? How do link it with my trading view?
LuxAlgo
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@Femi78, Hi there! Yes Lux Algo Premium is an invite-only script. By signing up for any of the plans on our website (link on our profile) you will get instantly invited to our premium suite which includes the Pattern Detection feature within the settings menu of the Lux Algo Premium indicator toolkit. Hope this helps.
Hello Good day to u Do those patterns determine BUY & SELL points too? Because for every pattern we should know where we should enter and where should exit Thanks in advance
Mokerkane
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@irtrader_425798, you really can't do that with patterns. You will need to keep an eye on them and maybe set some alerts if you don't want to watch them.