CMC Markets has launched a new pattern recognition tool to help traders sort data, identify patterns and execute trades with ease. It is thought to be the first time in Australia that pattern recognition software has been integrated into an existing platform rather than using a third party provider.

Pattern recognition is free to all clients using CMC Market’s desktop and web based CFD platforms. Since being launched to CMC Markets’ existing clients in Australia, almost 40% of active clients have taken up the tool.

Pattern recognition is one of the most versatile skills that a trader can have and focuses on finding price patterns and using them to look for breakouts and momentum shifts across markets and timeframes. It has multiple applications and can assist clients to work out where to enter, set stop loss orders and set profit targets. It can be as advanced as complex algorithms or involve nothing more than a pencil and a ruler.
CMC Market’s new software identifies both completed and emerging patterns over short or medium time frames and ranks the quality of the chart signals based on technical indicators such as moving averages.

“One of the biggest benefits of the software is it allows traders to scan a wide variety of markets swiftly and rank them,” David Land, CMC Markets Chief Market Analyst said.

“By integrating it onto our platform, traders who already trade confidently but are currently using third party applications can now scope out simple or complex patterns then execute positions with ease,” said Mr Land.

The integrated software can also educate traders who don’t currently use technical analysis as part of their technique, with free video tutorials and an internally-written software guide.

“CMC Markets has a strong focus on education and it is important to ensure clients are equipped to use the tools effectively. The key is for traders to build their experience gradually and spend time learning the basic rules around pattern recognition,” Land said.

Once patterns have been identified, it is then up to the trader to decide whether to execute the trade. They can take long or short positions based on chart signals. In periods of volatility where markets appear to be moving sideways, identifying emerging patterns can assist in generating returns.

The software allows traders to customise the type and number of patterns that are displayed to identify trades and understand the risks associated with a position.

“We are providing our clients with a powerful, customisable piece of software and have made it as easy to use as possible. Pattern recognition is based on carefully tested methods and is another way to equip traders with the tools that are crucial for their success,” Mr Land concluded.

How pattern recognition works

CMC Markets’ integrated pattern recognition tool can follow price patterns for traders, and allows them to trade when they feel the moment is right. Triangles? Wedges? Channels? Head and shoulders? Diamonds? Each pattern has a story to tell about the direction of the market. Traders can pinpoint and overlay any pattern on any chart, and then watch it develop in real time.

Some patterns are on their way to becoming opportunities and some are already there. The tool can be used to tag emerging patterns and get an alert when the pattern is complete. If traders would like to know how previous patterns have panned out, the tool also the ability to review.

Every pattern gets a one- to five-star rating based on a range of indicators including MACD, the RSI, stochastic oscillator, 21- and 55-day period moving average, the DMI plus and DMI minus. The more stars, the stronger the signal.

In the following chart you can see the blue lines are pointing to one of the most common patterns, the symmetrical triangle. Triangles are one of the most common patterns that allow a trader to see opportunities on both the long and short side, and capture the point at which the price consolidates, allowing a trader to see where an eventual “breakout” will occur.

Seeing this chart from a normal point of view it is just a trading chart. But from a pattern recognition point of view, the blue lines form a symmetrical triangle, pointing to where a trader can pick a break out in the price.

With the new integrated platform, once they have identified a pattern, a trader has all the normal features that allow them to open an order ticket and place a trade in the normal way.

Another feature of this platform is the ability to open charts and then add patterns in real time as well as look at how these same types of patterns have performed in the past. This can be done across many different time frames to give an idea of the success of a certain type of pattern.

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