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14 Figure 3.6. PuUback 3.1.7 Test (T) / is h;u tli.il hriiks iriviiHis mii)iiiI vrMst.iiuv iiiitl then rcbmmds in rhc (iihfi iliiiiliiiii. Ill .1 biillisli Ilsi, ilir IV.I li.n bii.ilc. Inlow .i >irviiHiK i>w (t.ll...... lu ihi low ..I ,.ii< Imi .i,4.).iiiiI i]i..i. hi llir ..,. ImH ol il>. i.iiir. hi bearish Test, the Test bar exceeds a previous high (cannot be the high one bar ago) and closes in the bottom half ofits range. In Figure 3.7 below, the highest high is abearishTestmarkedby theletterT. It breaks the previous high offour bars ago but closes near the bottom ofits range. ConditionZ = AcmeTail(Percent, RangeLength) = 2; Conditions = AcrneCobra(Percent, RangeFactor) = 2; If ADX(Length) >= ADXLimit and DHIHinus(Length) > DMIPlus(Length) and AcmeRangePercent(Close, RangeLength) >= (l  Percent) and (Conditionl or Condition2 or Conditions) Then AcmePullback = 2; Thec/weP(( 6acA: function is divided into two code fragments: the first section looks for a bullish pullback, and the second section looks for a bearish pullback. Abullishpullbackmust satisfy the following minimurn criteria: 1. The ADX over Lengfii must be greater than or equal to the ADXLimit. 2. The +DM1 must be greater than DM1, mdicatuig an up trend. 3. The Range Percentage (RP) oftiie close must be or less merthe past LUaigeLetigtlibars. 4. The bar pattern must be a bullish threebar PuUback, , or Cobra. The minimum criteria for a bearish pullback are reversed for items 2, 3, and 4. The DM1 must be greater tiian +DM1, and tiie RP must be at least .
the VZone is another acmedesigned pattern it is a pattern based on a break ofweekly siqiport or resistance. the v zone is named for its resemblance to the letter "v" on the chart for a bullish pattern and an inverted "v" for a bearish pattem (see figure 3.8). the v zone is the only pattem that takes the weekend into effect because a stock that closes on its low for the week will tend to break that low the fohowing week. cker the weekend, people in such a long position think about how pooriy their position is faring and have two days to buhd up emotional capital hi their jxTsitioii these emotions trigger panic the fohowirs; week iffhe stock continues its downward momentum. the easjlanguage code for calculating the v low price is shown in example 3.3: Example 3.3. function AemeVLoiu *************************************+********+*♦****************** acmevlow: find the v low price Inputs: VolatilityFactor(Numeric), Length(Numeric); AcmeVLow = 0.0; If LoiAJ(l) > 0 and Volatility(Length) > Then AcmeVLow = LowW(l)  (VolatilityFactor * Volatility(Length)); the formula for calculating the v low zone is simple: determine the low offhe previous week using the zow it easjlanguage function, and then subtract a multiple (VolatilityFactor/ ofthe atr from the weekly low. similarly, for the v high zone, calculate the high offhe pre\ioiis week with the /agft it function, and add the multiple ofthe atr. 3.2 pattem qiialifiers a Pattern Qualifier (pq) is a characteristic of a bar, not a bar pattem per se; however, it quahfies for the pattem count in the acme m system. for example, if two pattems are foimd, and the bar is an nr bar, then the pattem count is equal to three. 3.2.1 narrow range (n) the first qualifier is the narrow range (n) qualifier,denotedby the letter n on the diart. it is not placed on the chart unless other bar patterns accompany it, and it IS marked only wilh tlie h of tlie bar pattern, i.e., it is placed on only one end offhe bar. for example, in figure 3.9, the n quahfier is appended to a bullish tail (l) and atest (T), forming the "ltn" sequence. Figure 3.9. narrow range qualifier 3.2.2 average (a) the second quahfier is the average pattem qualifier, denoted by the letter athe aerage pq marks a bar that is sitting on the 50bar mo\Tng average. it alerts the trader to this critical mo\Tng aerage by placing an a abo\e and below the bar. unlike the narrow range quahfier, the aerage pq implies no bias when a stock is trading at its 50bar mo\ing aerage (see figure 3.10).
3 Pattern Trading Although the Average PQ is 50 bars by default, the trader can implement PQs for other critical moving averages such as the 200bar moving average. The key to pattern trading is to recognize those patterns that are important to technical analysts to supplement the patterns that the trader discovers on his or her own. For example, a Fibonacci Pattern Qualifier could be designed to mark a swing retracement from a pivot bar of a given strength. 3.3 Pattern Trading System (Acme M) With the pattems and qualifiers defined, we now implement a pattern trading system known as the Acme M System. It simply counts the number ofbullish or bearish patterns on any given bar. Ifthe number of pattems is greater than the minimum number of pattems specified by the system, and the swing trading criteria are satisfied, then a signal is generated. The swing trading criteria are twofold. First, the bar must be a swing high or low over a certain range ofbars. Second, the swing high or low must fall in a certain range percentage over that same range. Currently, the default value for the reference range is five bars, and the defaultvalue for the Range Percentage is 40%. Note that the Acme M System avoids gaps that are not in the direction of the trade. For example, if the high of the current bar is less than the low of the previous bar (gap down), then a long trade will not be taken. 3.3.1 Long Signal Calculations 1. Total the number of Bullish Patterns and Pattern Qualifiers. 2. Calculate the Lowest Low ofthe previous 4 bars (LL4). 3. Calculate the Range Percentage ofthe High ofthe current bar relative to the range ofthe previous 4 bars (RPh4). 4. Calculate the ATR for the last 14 bars (ATR„). Entry Rules 1. Number of Bulhsh Patterns >= 3 2. Low < LL4 3. RPh4 <= 40% 4. Buy the next bar at or above the Hligh + (Entry Factor * ATR) 3.3 Pattern Trading System (Acme M) Exit Rules: Profit Target 1. Sell half of the position at or above the High + (ProfitFactor * ATR14) 2. Sell half of the position at or above the High of ProfitBars ago + (2 * ProfitFactor * ATRu) Exit Rules: Stop Loss 1. Sell all shares at or below the Lowest Low for StopBars (ExitFactor* ATR14) 332 Short Signal Calculations 1. Total the number of Bearish Pattems and Pattern Qualifiers. 2. Calculate the Highest High of the previous 4 bars (HH4). 3. Calculate the Range Percentage ofthe Low ofthe current bar relative to the range ofthe previous 4 bars Entry Rules 1. Number of Bearish Pattems >= 3 2. High > HH4 3. RPl4>=60% 4. Sell Short the next bar at or below the Low  (EntryFactor * ATRu) Exit Rules: ProfitTarget 1. Cover half of the position at or below the Low (ProfitFactor * ATR14) 2. Cover half of the position at or below the Low of ProfitBars ago (2 * ProfitFactor * ATR14) Exit Rules: Stop Loss 1. Cover all shares at or above the Highest High for StopBars (ExitFactor *ATRi4)
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