TRADING SYSTEM - Market Pattern Systems

Trading systems based on market patterns have received insufficient attention over the years, because in the past back-testing was laborious and frequently insufficient due to the difficulty of writing objective algorithms and the limited computer power then available to test such systems.  Virtually unlimited computer power can now be applied to thorough system testing over millions of combinations and iterations to adequately quantify the performance characteristics of pattern-based systems.

As an example of a pattern-based system, consider the following algorithm:

This is an example of a fairly elementary market pattern that can be quickly tested via computer but which was exceedingly difficult to validate or even back-test prior to the development of today's advanced computer systems.  Among today's most effective market pattern systems we find methods that compare multiple-day open, high, close, and low relationship with timing indicators and a variety of trend filters.

Nevertheless we can see from a real life trade profit below had one employ this basic system:

  It can be noted that Tuesday's high is greater than Monday's open and last Friday's high, so if one just follow this simple trading instruction and enter at a two-tick penetration of Monday's high on Tuesday, i.e. 1556, just look at the profit that could have been made as market surge up to a high of 1976 in just less than two months, a profit of 420 points or RM10500.