Using Pattern Recognition In Your Commodity Trading SystemDo you use pattern recognition in your commodity trading system ? The human mental frame has been designed in a way that it seeks connection between things and events. Driven by this tendency, the technical analysts seek patterns in the performance of an individual commodity future or the general trend in the futures markets. Also known as chartists, the technical analysts believe that everything that is needed to know about a stock or commodity future is contained in its price history. Price movement is what forms the basis of a pattern-based commodity trading system. How Patterns OccurAll stock and futures markets form patterns. A pattern occurs when daily highs and lows over a specific period of time form a "pattern". These patterns are important, as stock and futures analysts believe that there is an 80% probability that the market will move in the direction predicted by the pattern.Numerous pattern recognition studies have repeatedly shown that these patterns have excellent predictive value. In fact, technical analysts who effectively identify these classics, tried-and-true chart patterns are among the most successful traders in the world. Recognizing Patterns When They OccurAlso, this type of technical analysis relies on the technical analysts' judgment for determining whether a pattern exists or not. Common techniques utilized in this type of technical analysis involve drawing trend lines on the chart and using other line studies such as Fibonacci Arcs, Gann Fans, etc.Adjacent illustration demonstrates a trend line after recognition of the pattern of Cisco Systems Inc. (CSCO) stock movement. You will notice the distinct upward trend in the CSCO chart from November 5th to December 13th, 1999. This type of trend can be exploited by purchasing the stock after the trend has lasted for so many days and selling the stock once the trend appears to be broken. Day Trading Strategy .com, P.O. Box 890529 Houston, Texas 77289 info@Day-Trading-Strategy.com |