USE ONLY THE DATA THAT EXCEEDS A THRESHOLD FOR A PATTERN MATCH TO MAKE FUTURE PROJECTIONS
We have previously written about the Pattern Matcher Add-on and demonstrated how it could be used to determine whether a pattern you specify occurred in the past. But the obvious question is that once a pattern is identified, what happens next in the market? Identifying market moves may be second nature for traders who have watched charts for years, but the projection indicators included in the Pattern Matcher Add-on may help level the playing field.
For example, the Project Max and Min indicators find patterns in an indicator such as Momentum and use that information to project future min and max values for the close 5 bars into the future.
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The Pattern Matcher Project Min and Max indicators look for patterns in the Momentum indicator to predict the value of the close 5 bars into the future. When the match value does not exceed a given threshold, no projections are made.
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We recommend using indicators such as Momentum that are normalized over the entire data stream as the data stream to watch in the Project Min and Max indicators. Momentum computes the change from the current momentum value and the value several periods ago. No matter how much the price may fluctuate over several years of data, the Momentum value from one day to the next is not likely to vary that much from one day to the next. This will make it easier for the Project Min/Max indicators to find similar patterns.
Once the patterns are identified in the Momentum indicator, the amount of pattern match is compared to a threshold that you set (or optimize). If the amount of pattern match meets or exceeds the threshold, the projected
Max and Min values for the close are displayed on the chart. If the pattern does not exceed the threshold, the projection is not displayed, which is what occurs when there are gaps in the projections on the chart.
Based on our experience, it is better to use the Project indicators for discretionary trading rather than as inputs to a neural network or a trading strategy.
The complete product manual may be read on our web site: http://www.neuroshell.com/add-ons.html . Look for details on the Pattern Matcher add-on and the link for the product manual appears at the end. You can download the chart created for this article from www.ward.net .