Autochartist In-Depth: Custom Searches
Customising search criteria to enable the delivery of pattern alerts tailored to your personal specifications is one of the most important steps in getting the best from Autochartist.
Initially, using the default settings is an excellent way to start. Most traders will deviate little from these settings at first, and using the defaults mean you have access to the greatest number of pattern alerts. However, customised searches allow you to steer Autochartist towards the areas of particular interest to you, keeping you from having to wade through a sea of unnecessary data.
To reduce the number of alerts being presented, Autochartist provides certain criteria that may be altered to better pinpoint its selection process to reflect a trader's particular requirements. For newer traders this process is invaluable, because it requires some forethought about the trading process and reduces the number of setups. A suggestion for all traders is that - at the very minimum - they customise Autochartist to select the specific markets in which they trade most often.
The market direction can be narrowed to show patterns from 'Bull' or 'Bear' markets only. If you are looking to profit from either long or short trades exclusively, then you can focus your pattern alerts here. Since most traders do prefer to trade both long and short, however, the default setting is 'Bull & Bear'.
Continuing to look at market direction, the 'Trend Change' filter allows a trader to choose between 'Continuation' patterns, 'Reversal' patterns, or both. Remember, simply because a particular pattern may be categorised as 'Continuation' or 'Reversal' doesn't mean it is guaranteed to move in that direction to trigger the entry. As such, we strongly recommend that the 'Continuation & Reversal' default setting be kept.
The minimum length of the patterns you are looking for can be adjusted between 20 and 200 candles using the 'Minimum Pattern Length' selection. Generally speaking, a smaller pattern reflects near-term psychology while larger patterns reflect longer-term psychology.
However, when amending the minimum pattern length, you should also bear in mind the timescale of the chart – a 20-candle pattern on a 240-minute chart is very different to that of a 20-candle pattern on a 15-minute chart, but both are short term relative to their respective timeframe.
Keeping the minimum pattern length at the 20-candle default will alert the greatest number of patterns, as the criterion will allow for short and long pattern lengths.
Quality indicators
Thus far the search criteria have been simple and for the most part we would recommend they should be left on default. However the next set of criteria, known as the 'quality indicators', look at the technical aspects of the patterns identified by Autochartist and allow more advanced users and traders to be very specific about the type of pattern they will be alerted to.
There are six quality indicators in total. The overall 'quality' of a pattern alert, as shown in the image above, is a combination of three specific indicators: the 'Clarity', 'Initial Trend', and 'Uniformity' of the pattern, which combine to offer the most detailed view of what the pattern might mean
Before making any adjustments, these quality indicators must be fully understood. Keeping the quality settings low offers the most flexibility in the alerts, while filtering for only those patterns with higher readings will reduce the number of alerts and limit it to those with more clearly defined quality. The best starting point for filtering your alerts for quality is with the clarity and uniformity readings, as these affect both trending and non-trending patterns the same way.
Clarity and uniformity
Sometimes patterns simply look good; a seasoned trader can often can distinguish between patterns simply on aesthetics alone, but what they're picking up on is the clarity and uniformity of a pattern, albeit in an unscientific, subjective way. Autochartist's clarity and uniformity readings are a more technically objective classification of pattern aesthetics, since they reflect a pattern’s price action, support and resistance.
Clarity, as the name suggests, measures how clear and uncomplicated the pattern is – what you might call the 'signal to noise ratio'. Gapping, random price fluctuations, or dramatic highs or lows (sometimes known as 'wicking') all distort the pattern's aesthetic form, and as such the clarity reading will be lower. Low clarity also suggests the possibility of false pattern triggers, also called 'whipsaws'. This is when prices break a pattern but do not follow through, reversing back within the lines of the pattern and often subsequently going in the opposite direction.
The uniformity of a pattern describes the behaviour of price action within the support and resistance lines of the pattern. A pattern with high uniformity will have touchpoints (those highs and lows that indicate support and resistance) evenly spaced along the support/resistance lines, with roughly even numbers of touchpoints on each line. When a pattern is uniform, it appears as if price action is filling up the pattern.
Initial trend, volume increase and breakout strength
The initial trend reading indicates the strength of the trend leading up to the start of a pattern, and should generally be kept low. This is simply because trending and non-trending patterns have differing initial trend requirements, and non-trending patterns such as triangles and rectangles can have low initial trend readings. Initial trend readings must be considered within the context of the pattern type itself – for more information on the importance of the initial trend, see Trending Patterns.
The remaining indicators are 'volume increase' and 'breakout strength'. Volume increase is a measurement of the rise in market participation throughout the pattern (note that this indicator is not applicable to Forex patterns), while breakout strength applies only once price action has broken through the support or resistance line of the pattern. If the momentum (as seen by price movement) increases as the pattern's support or resistance is pierced, this would yield a higher breakout reading. Conversely, less momentum at the point of piercing would yield a lower breakout reading. The lines of a pattern indicate strong support and resistance, and as such any break through these lines/levels should accompany more market participation and possibly more follow-through.
Autochartist in-depth: trending patterns
Part three of our guide to Autochartist looks at chart patterns which show the market developing in a clear direction, such as wedges, channels and angled flags. Find out more.
