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3.1 market pattems

the Maiket Paitenis indicator is a series of letteis that identify specific bar pattems. gartley inspired this idea because he made hberaluse offhe letters offhe alphabet to identify market pivots [15]. for our purposes, a single letter denotes each pattern. for bullish pattems, a letter is placed on top offhe bar. for bearish pattems, the letter is placed below the bar. the list of acme pattems is shown in table 3.1

table 3.1. acme market pattems





inside day 2






3.1.1 cobra(c)

a Cobra is a narrow range bar named for its resemblance to the snake, i.e., the open and close finish at opposite extremes offhe bar. for a bullish cobra, the open must be in the bottom ofthe range, and the close must be in the top offhe range. for a bearish cobra, the open must be in the top offhe range, and the close must be in the bottom offhe range

figure 3.1 shows twobullish cobras withfhe letter above each bar. typically, the cobra precedes a large-range day. the pattem is essentially a narrow range day showing strength. the letter n denotes a narrow range day; it is not an independent pattern pec se but is noted when other pattems are present (see section 3.2 on pattem ijiu.-j

-31 30.000

1- >. «.

Fiire3.1. cobra

3.1.2 hook(h)

a Hook is a retracement bar that appears to reverse the retracement trend but then closes in the direction of the retracement. figure 3.2 is an example of a bearish hook with the letter h below the bar a series of puhback days, then the stock gaps up at the open but closes down on the day, continuing the puhback. essentiahy, the bujers here were "hooked" on the days open.

ri;iiif 1.2. II.H.Is

float or its eps growth. we envision the day when internet-wide public feeds transmit ah kinds ofinfomiation in real-time: eamings reports, basebah scores, weather forecasts, etc.

Figure 3.3. Inside 2


A Tail is a bar where the open and close are m the same half-bar. If both the close and open are in the upper half of the range, then that is a bnUish tail. If boOi the close and opea are in the lower half of the range, then that is a bearish tan. Figure 3.4 shows two bullish tails with the letter L above each bar; each 1 is also a narrow range bar

Thec7weA77?g?Pe7-cen/functioncalculates where a price falls as apercentage ofthe range (between 0 and 100) for a single bar or for a number ofbars; this number is the Sange Percentage (RP). For a single bar, the low ofthe bar has an RP of 0, and the high ofthe bar has an RP of 100. For a range ofbars, the lowest low ofthe range has an RP ofO, and the highest high ofthe range has an RP of 100.

An iimiU- ihy IS ,1 wu-K- Ilu- hipli is b,wcv tli.iii llii- prmiHis liii .iiul the Inw ik ( tli.111 ilii-.n-vi.iiisl<.vv, i.e.. iliftiiiifiii Kir Ills iiiMtU- ill.-i4-vii>iik lui

111 •.1( 1 ll • ImMIiIC.. .1 S.....I.ll i.lM....... kllilVVII .14 .1 I I......lit I. bill ll !•. Illllll llMlll tivc

I In r.iii.ll< .ll. .i..i.>4imit.......I il.i- .i.......- .1 SI.........S.„. 1,1,1 t„ Sli,.„liii,. Siji I-

miiii i.iiii- i,-.lii< li\<

Figure 3.4. Tail

The EasjLanguage code for identifjing a 1 is shown below in Example 3.1. Each pattem function assigns the following codes to return the pattem status:

a 0 = Pattem Not Found a 1 = Bullish Pattem Found a 2 = Bearish Pattem Foimd

Example 3.1. Function AcmeTail AcmeTail: Search for a Tail Pattern


t(Nun,eric}, ength(Nunieiic);

Variables: RP(O.O), RP25(0.25). RlW(n.Sn);

3.1.3 Inside Day2(l)

An Inside Day 2 bai is aninsiek day followed by another inside day. By definition, it is a narrow range day without any directional bias, thus the reason for annotating both the top and bottom ofthe bar with the letter 1. A trade would normally be taken in the direction ofthe breakout, as in Figure 3.3 below. Note that an inside day is not necessarily a narrow range day. If an outside day has a very large range, then the inside days range may still be greater than the ATR.

The RP is also used as an mput parameter to specify where the open and close must appear on a given bar. For example, an RP of 80 means that the open and close must be in the upper or lower 20 ofthe bar. The trader can adjust the RP for certain pattems, e.g., 80 for more restrictive or 60 for less restrictive. Ifthe trader wants shaven heads [22], then the RP can be set even higher. Ultimately, the choice is a tradeoffbetween discretion and automation

AcmeTail = ;

RP = (AcmeRangePercent(Open,

angePercent(Close, 1)) / 2;

Conditioni = RP >= (1 - Percent);

Condition2 = AcmeRangePercent(Close, l) >= (1 - RP25); If (Conditioni or Condition2) and AcmeRangePercent(Low, RangeLength) <= Percent and AcmeRangePercent(Open, l) > RP50 and AcmeRangePercent(Close, l) > RP50 Then AcmeTail = 1;

Conditioni = RP <= Percent;

Condition2 = AcmeRangePercent(Close, 1) RP25; If (Conditioni or Condition2) and

AcmeRangePercent(High, RangeLength) >- (l - Percent) and AcmeRangePercent(Open, 1) < RP50 and AcmeRangePercent(Close, l) < RP50 Then AcmeTail = 2;

?..1.5 Har.iiHi t.

AHai-amiis a classic candlestick pattem. It is a two-bar pattem where an inside bar fohows a wide range bar, and the inside bar closes in the opposite direction. A Haraini by itself does not indicate a change in trend, but it can signal a reversal when combined with other market pattems. Figure 3.5 is a chart with both a bearish Harami (the close is greater than the open in the wide range bar followed by the close balow the open m the inside bar) and a buUish Harami (the close is less than the open in the wide range bar, and the close is abo\e the open in the second inside bar):

I •KH.v l.S. 11

The fundionAcmeHarami implements an extended Harami pattem for up to three bars, that is, ifthe wide range bar is fohowed by a series ofinside bars, then the pattem is in effect until price breaks out ofthe original wide range bar.

3.1.6 Pullback(P)

APuUbackis the traditional Gann puhback pattem. A bullish puhback occurs when the trend is up, and price makes a certain number oflower lows or a combination oflower lows and inside dajs [4]. A bearish puhback occurs when the trend is down, and price makes a certain number of higher highs or a combination of higher highs and inside days. Figure 3.6 shows an example of a bearish Puhback with the letter P below the bar.

The faacticnAcmePullback defines a puhback in other ways, too. Either a bulhsh Tail or a buUish Cobra can mark the bottom of a retracement in an up trend. Similarly, a bearish Tail or Cobra can mark the top of a retracement in a downtrend. The EasjLanguage code for / function is shown in Example 3.2:

Example 3.2, Function AcmePulihack

AcmePullback: Search for a Gann Pullback Pattern


ADXLimit(Numeric), Length(Numeric);


PullbackBars(3), Percent(0.35), RangeLength(5), RangeFactor(o.7);

AcmePullback = 0;

Conditioni = AcmeRetraceDown(PuUbackBais) = True; Condition2 = AcmeTail(Percent, RangeLength) = 1; Condition3 = AcmeCobra(Percent, RangeFactor) = 1;

If ADX(Length) ADXLimit and DMIPliis(Length) > DMIHinus(tength) and AcmeRangePercent(Close. Rangotonglh) < Pcrccnl and (Condilionl or Condition? or Condilionl) then AcniePiillh,irk l;


AiNiiki-lr.iirllp(l-iillli.ti I1t.if.)

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