Custom Search

Multiple candles make up each advanced pattern. Often patterns may consist of three or more separate candles, each in specific relation to one another. Sometimes, a pattern need only be based on shapes and locations, not the color and shape of each candle. In essence, we are teaching our pattern recognition system to associate patterns from a wide scope of knowledge. Now we need some form of logic to control and define what the PRS knows. Logic variables are similar to flags or road signs that guide the candlestick PRS to make the right choice. Using logic variables with your patterns organized from most critical to least critical ensures proper pattern recognition. Proper use of logic variables is critical to the operation of the PRS. If the PRS is guided illogically, you will end up with false information. WISDOM PLUS TECHNOLOGY

Pattern recognition is nothing new in technical analysis. Accurate interpretation of advanced candlestick patterns has through several centuries provided insight and knowledge about market direction. By combining this experience and human wisdom with artificial intelligence methods, a computer can accurately interpret Japanese candlesticks and provide you with important information as to future market events.

When interpreting candlesticks, a pattern recognition system is only as good as its weakest link. The system is useless unless it provides all the necessary insight and information to advise the trader of possible future events. It is only in recent years that technological advances in PC hardware and software languages have provided us with ideal tools for advanced pattern recognition systems. In fact, it is only within the last year that these advances in technology have been applied to interpreting Japanese candlesticks.

The Japanese technique of candlestick charting has taken price movement, broken it down and categorized it into valid groups and patterns that can indicate future market trends in a simple manner. By establishing trading rules and principles through a neural network and assigning numeric values to each group, artificial intelligence techniques can be applied to candlesticks and developed to analyze and associate patterns, or groups of patterns, with other technical studies to provide new insight into market analysis.

Gary S. Wagner has been a registered commodity broker since 1984. Bradley L. Matheny is a systems analyst and has been developing custom software applications for eight years. They are currently technical lmarket analysis software developers for International Pacific Trading Company, and they co-developed The Candlestick Forecaster, a candlestick-interpretation program based on artificial intelligence.



REFERENCES

Goldberg, David E. [1988]. Genetic Algorithms In Search, Optimization And Machine, Addison-Wesley.
Heller, Martin [1991]. "AI in practice," BYTE, Volume 16, Number 1.
Hymes, Dell [1964]. Language in Culture and Society, Harper & Row.
International Pacific Trading Company,30011 Ivy Glenn, Suite 125, Laguna Niguel, CA 92677, (800) 347-5311.
Nison, Steve [1991]. Japanese Candlestick Charting Techniques , Simon & Schuster.
Seki, Shimizu [1986]. The Japanese Chart of Charts, Futures Trading Publishing Co.
Thompson, Bill, and Bev Thompson [1991]. "Overturning the category bucket," BYTE, Volume 16, Number 1.

FIGURE 1 The body can be filled in or empty. When the close is lower than the open the body is filled in; if the close is higher than the open the body is left empty.

FIGURE 2 The candle pattern called black doji line occurs when the opening and closing prices are almost equal. The black doji line often indicates a trend change or a market bottom or top.

FIGURE 3 The black doji star pattern indicates that a reversal may be in sight. Traders should use caution at the sign of this pattern and look for a possible top or bottom.

FIGURE 4 The three river evening black doji star is composed of a dark cloud formation with a star gapped above the white or black candles. A bearish pattern, it signals a possible top.

FIGURE 5 The long white line occurs when the open is lower than the close and the daily range Is greater than average. The close must be lower than the high and the open must be greater than the low. The pattern is considered bullish.

FIGURE 6 The daily ranges exceeds the average daily range but the close must be less than the high and the open must be greater than the low to be a long white line.

FIGURE 7 The harami white cross may signal a trend change or reversal, especially when found near a new high. Traders are advised to wait for confirmation and look at previous candles to determine the direction of the trend