Technical analysis formation recognition using pivot points

• US 20030065607A1
• Filed: 09/17/2002
• Published: 04/03/2003
• Est. Priority Date: 09/17/2001
• Status: Active Grant

• Current Assignee: Recognia Incorporated (TRADING Central SA)
• Original Assignee: Recognia Incorporated (TRADING Central SA)
• Inventors: Satchwell, Christopher J.
• Granted Patent: US 7,835,966 B2
• Time in Patent Office: Days
• US Class Current: 705/36
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A method of formation recognition in technical analysis relies on the use of pivot points. A formation of interest is defined in terms of extreme points. The extreme points can be characterized in relation to one another as a series of local or global extrema in corresponding intervals. The method numbers the pivot points in reverse chronological order and attempts to match pivot points with the extreme points of the formation of interest. The first pivot point is assigned to the first extreme point of the formation. A second pivot point is selected from the interval defined by the first pivot point and the highest numbered pivot point that is a high or a low, as required by the formation. Subsequent pivot points are selected from intervals determined based on the formation and previously determined intervals. A formation is recognized if corresponding pivot points are identified for all extreme points in the formation.

Claims

1. A method of formation recognition in pivot points, the formation defined by a sequence of alternating high and low extreme points, the method comprising:

a) numbering the pivot points of interest in reverse chronological order (pivot points p₁ . . . p_n);

b) determining the polarity of formation based on the first extreme point e₁;

c) identifying the first pivot point pi with the first extreme point e₁;

d) setting p to be the highest numbered pivot point that is a high or a low depending on the formation and the polarity of the formation;

e) setting the interval I_k, corresponding to e_k, to be (p₁,p];

f) determining, based on the formation of interest, the polarity of the extreme point e_k;

g) identifying a pivot point in I_k, the pivot point being an extremum in I_k and having the same polarity as the determined polarity e_k;

h) iteratively, for each of extreme points e<sub>k−

1</sub> to e₂,

determining an interval corresponding to the extreme point based on the formation and previously determined intervals;

determining the polarity of extreme point;

identifying a pivot point in the interval, the pivot point being an extremum in the interval and having the same polarity as the determined polarity of the extreme point; and

i) recognizing the formation of interest if corresponding pivot points p₁ . . . p_k have been identified as corresponding to extreme points e₁ to e_k, otherwise not recognizing the formation of interest.

2. The method of claim 1, wherein the formation is a five point continuation triangle, the polarity of e₁ is high, e₅ is a maximum in the interval (e₁, p_n], e₄ is a minimum in the interval (e₁,p_e5) where p_e5 is a pivot point corresponding to e₅, e₃ is a maximum in the interval (e₁,p_e4) where p_e4 is a pivot point corresponding to e₄, and e₂ is a minimum in the interval (e₁,p_e3), where p_e3 is a pivot point corresponding to e₃.

3. The method of claim 2, wherein the formation is a nine point reversal diamond, the polarity of e₁ is low, e5 is a minimum in the interval (e₁,p_n], if n is even, otherwise use the interval (e₁, p_n−

1), e4 is a maximum in the subinterval (e₁,p_e5) where p_e5 is a pivot point corresponding to e₅, e₃ is a minimum in the subinterval (e₁,p_e4) where p_e4 is a pivot point corresponding to e₄, e₂ is a maximum in the subinterval (e₁,p_e3), where p_e3 is a pivot point corresponding to e₃, e₆ is a maximum in the interval (p_e5,p_n) where p_e5 is a pivot point corresponding to e₅;

e₇ is a minimum in the interval (p_e6, p_n) where p_e6 is a pivot point corresponding to e₆; and

e₈ is a maximum in the interval (p_e7, p_n], where p_e7 is a pivot point corresponding to e₇.

4. A method of continuation triangle formation recognition using pivot points, the method comprising:

sequentially numbering the pivot points in reverse chronological sequence;

selecting an odd numbered initial pivot number as the first peak pivot point; and

repeatedly, until a triangle formation is recognized,

determining a line through a first numbered pivot point through to the first peak pivot and rotating the coordinate system to be coincident with the line;

ensuring that no pivot intermediate the first peak pivot and the first numbered pivot has a larger value;

determining a first trough pivot point between the first peak pivot and the first numbered pivot having a smallest value;

determining a second peak pivot point between the first trough pivot point and the first numbered pivot having a largest value; and

determining a second trough pivot point between the second peak pivot point and the first numbered pivot point having a smallest value;

identifying a triangle formation comprising the first peak pivot, the first trough pivot, the second peak pivot, the second trough pivot and the first numbered pivot.

5. The method of claim 4, further comprising testing the triangle formation comprising the first peak pivot, the first trough pivot, the second peak pivot, the second trough pivot and the first numbered pivot to ensure that the triangle formation satisfies at least one predetermined condition.

6. The method of claim 5, wherein the at least one predetermined condition comprises requiring that the triangle formation be sufficiently symmetric.

7. The method of claim 4 further comprising classifying the triangle formation into at least one of ascending triangle, wedge and symmetrical triangle formations.

8. The method of claim 4, wherein the triangle formation is defined by five points.

9. The method of claim 4, wherein the triangle formation is defined by an odd number of points, the odd number being greater than five.

10. The method of claim 4, applied to mirror-imaged pivots representing prices to recognize continuation triangles in a bear trend and wherein after recognition and transformation to original price-time space, ascending triangles are labelled as descending.

11. A method of reversal diamond formation recognition using alternating low and high pivot points, the method comprising:

sequentially numbering the pivot points in reverse chronological sequence with the right most pivot being a low, and numbered one;

selecting the highest even numbered pivot as the current pivot point; and

repeatedly, until a reversal diamond formation is recognized or determined not to exist,

locating a low vertex of the formation by identifying the lowest pivot point between the current pivot point and the right most pivot point

determining a first right peak by identifying the highest pivot point between the low vertex and the right most pivot point;

determining a right trough by identifying the lowest pivot point between the first right peak and the right most pivot point;

determining a second right peak by identifying the highest pivot point between the right trough and the right most pivot point;

determining a first left peak by identifying the highest pivot point between the current pivot point and the low vertex;

determining a left trough by identifying the lowest pivot point between the first left peak and the current pivot point;

determining a second left peak by identifying the highest pivot point between the left trough and the current pivot point;

determining that no reversal diamond formation exists if any of the highest or lowest pivot points cannot be identified;

determining that a reversal diamond formation exists if the second left peak is the current pivot point; and

if the second peak point is not the current pivot point, then setting a new current pivot point to the pivot point two to the right of the current pivot for a new iteration.

12. The method of claim 11, further comprising determining that the reversal diamond formation is not recognized if the current close is not less than a threshold price at a current date.

13. The method of claim 12, further comprising determining that the formation is not recognized if the drop is not greater than a minimum trade, where optionally, the minimum trade can be chosen to be the product of a parameter and estimate of market noise, to make the formation distinct from random price fluctuations.

14. The method of claim 13, further comprising determining that the formation is not recognized if there is inadequate prior trend.

15. The method of claim 14, further comprising determining that the formation is not recognized if there are not enough price bars in the formation.

16. The method of claim 15, further comprising determining that the formation is not recognized if the formation is not sufficiently symmetrical.

17. The method of claim 16, further comprising determining that the formation is not recognized if the right-most close is not the first close below the threshold price line.