Identify And Trade Formations
Detecting Breakouts From Flags & Pennants
by Markos Katsanos
Here's a system to identify and trade flag and pennant formations.
In my previous article, I wrote about the measuring implications, duration, and identifying characteristics of flags and their variations, and promised to present a system to identify and trade these short-term and highly profitable formations. I constructed a viable system by distilling the most useful statistics together with technical observations of 100 flag and pennant samples. I optimized the test parameters in further out-of-sample testing of a list of 250 stocks.
In this article, I have presented the formula and methods used in this system, along with the test results on four stocks. I found the most profitable test returned an adequate 187% profit being only 8% of the time in the market, versus a tragic 91% loss for the buy and hold investor.
A frequent trader, however, will need to wait for the next entry signal, since the system test produced only one trade per year on average. Nevertheless, this need not be a major disadvantage, as a daily scan of a large database of stocks is bound to produce a few trades. I ran a MetaStock exploration on a database of 1,250 stocks and produced 13 hits. Results were highly profitable, producing an annualized 735% profit.
TEST DESIGN
The formula language of off-the-shelf technical analysis programs like MetaStock might be easy to use for the usual tasks but presents major limitations in recognizing patterns or formations. On the other hand, a lower-level programming language can be more effective but will require extensive and tedious programming.
Nevertheless, I did my best to design a system that identified an adequate number of flags and pennants, using only the formulas available in MetaStock (see sidebar 1, 'MetaStock code: system test, flags & pennants'). I did so with only nine lines of code, as opposed to more than a hundred that would have been required had I used a lower-level programming language instead. I do not claim, however, that the system can identify all possible flag patterns that could be detected visually or otherwise.
I used mainly the zigzag and linear regression slope function to identify the patterns. The zigzag function identified the flagpole top, and the linear regression slope ensured that a steep and quick move was followed by a sideways or slightly down flag formation. The following test conditions were used to identify the pattern.
Figure 1: Statistics for bullish-only formations. The percent breakout is measured from the point at which the upper trendline is broken in an uptrend. The duration is in trading days and does not include weekends and holidays. The formation characteristics are divided by percentiles according to values below which certain percentages of cases fall. So for example, the 5% percentile of the formation duration is four days, which means that 5% of the formations will last for four days or less. ..Continued in the May issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the May 2005 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2005, Technical Analysis, Inc.
Return to May 2005 Contents Metastock Explorer Code Days Since Last Signals
MetaStock is a proprietarycomputer program originally released by Computer Asset Management in 1985. It is used for charting and technical analysis of stock (and other asset) prices.[1][2] It has both real-time and end-of-day versions. MetaStock is a product of Innovative Market Analysis.
Early history[edit]
In 1982 Steve Achelis started a company named Computer Asset Management to develop financial and technical analysis software for personal computers. Computer Asset Management was renamed Equis International in 1989. Achelis’ first software application, written for the Apple II+, was The Financial Package which calculated various financial planning metrics. The Market Mood Monitor was released in 1984 and was eventually renamed The Technician. The Technician, written for the IBM PC, helped investors analyze and chart broad market conditions using sentiment, momentum, and monetary indicators. MetaStock 1.0 was released in 1986. Both MetaStock and The Technician received PC Magazine’s Editor’s Choice award in April 1986.[citation needed]
While The Technician analyzed broad market conditions, MetaStock analyzed individual securities (stocks, futures, mutual funds, etc.). In response to the increasing demand for real-time analysis of prices, MetaStock RT was released in July 1992. MetaStock RT received live, real-time quotes from Data Broadcasting’s Signal data feed. In 1995, MetaStock 5.0 was released for the Microsoft Windows 3.1 operating system. Later that year, MetaStock added support for the Reuters DataLink end-of-day data feed. This relationship with Reuters led to Reuters purchasing Equis International and its MetaStock software in 1996. In 1998, MetaStock was released for the Reuters Quotron data feed and in 2001 for the Reuters 3000 Xtraelectronic trading platform.[3] In June 2013, Thomson Reuters sold MetaStock to Innovative Market Analysis.
Versions[edit]
MetaStock 15 released November, 2016 [4]
|MetaStock 16.0 || 2018 || Windows 7/8/10|}MetaStock 16 released May, 2018 [5] Superantispyware registration code 6.0.1258.
References[edit]
External links[edit]Metastock Explorer Code Days Since Last Signal Movie
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