WO2001013313A2

WO2001013313A2 - Automated investment chart pattern search system for technical analysis

Info

Publication number: WO2001013313A2
Application number: PCT/US2000/040666
Authority: WO
Inventors: Bin Li
Original assignee: Westport Financial Llc
Priority date: 1999-08-16
Filing date: 2000-08-16
Publication date: 2001-02-22
Also published as: WO2001013313A3; WO2001013313A9; AU7881900A

Abstract

An automated investment chart pattern search system is provided. The system includes a computer, a historical information database accessible by the computer having historical information for a plurality of investments stored thereon, a connection to a supply of real-time data, the real time data comprising real-time data relating to a plurality of investments, and a templates database accessible by the computer having a plurality of templates stored thereon. Software executing on the computer generates an investment chart for the investment to be examined based upon the historical information and the real-time data relating to the investment to be examined. Sofware executing on the computer then retrieves at least one template from the templates database, and performs geometric projection analysis on the retrieved template and the investment chart to determine if a pattern exists in the investment chart. Next, software executing on the computer retreives at least one template from the templates database, and performs template matching analysis on the retrieved template and the investment chart to determine if a pattern exists in the investment chart. Software executing on the computer then performs projection line analysis on the investment chart to determine if a pattern exists in the investment chart.

Description

AUTOMATED INVESTMENT CHART PATTERN SEARCH SYSTEM FOR TECHNICAL ANALYSIS

Field of the Invention

The present application claims the benefit of U.S. Provisional Patent

Application No. 60/149,067, filed August 16, 1999.

Field of the Invention

The present invention relates to an automated system for assisting investors in

deciding whether to buy or sell certain investments, and more particularly to such a

system which automatically analyzes investment chart patterns to determine whether

certain buy or sell indicators are present.

Background of the Invention

Many investment analysts and traders design trading strategies and make

decisions based on technical analysis. They believe that publicly available technical

data of an investment - such as the historical open, high, low, close prices, daily

volumes, the last trade price and size, real-time bid/ask prices and bid/ask sizes -

contain a certain amount of information that can be used to some extent to predict

the future price movements of the investment and that, therefore, analyzing this data

can help them make profits. Over the course of the past 50 years, investment analysts have developed a

group of indicators based on the market data of investments. For example, moving

averages (MA), relative strength indexes (RSI), K/D stochastic analysis, moving

average convergence and divergence (MACD), Bollinger bands, and various

indexes are among the most popular indicators the general public uses to describe

individual investments as well as the market as a whole. For the purpose of

analyzing investments and designing trading strategies, traders and analysts plot

investment prices, volumes and other indictors in a graph and call it an investment

chart. Most people find these investment charts very useful. Technical analysis is

all about constructing investment charts and analyzing them to draw conclusions

about an investment: when to buy it and when to sell it.

Technical analysts and traders believe that certain investment chart shapes

and patterns hint buy and sell opportunities. Many professional and amateur traders

claim that they consistently made trading profits by following those buy and sell

signals.

Nowadays computers can conveniently draw investment charts with volumes

and various other indicators. The most popular device is the trade station. A typical

trade station stores investment data in a local database and receives the real-time

investment prices and volumes from a data vendor by means of a telephone line, a

designated data line or a satellite dish. The user of a trade station can create

various types of live (real-time) investment charts on the screen, and draw different

types of lines or curves on the chart to help analyze the investment. The average trader sits at the screen of a trade station during trading hours,

listens to the financial news, investigates all possible investment symbols he/she can

think of, and examines all the investment charts on the screen. Occasionally he/she

finds an investment that shows a typical buy or sell pattern. Then he/she researches

other available information about the investment before finally deciding to buy, sell or

short the investment. Later on, if the investment moves against him/her, indicating

that his/her original analysis is no longer valid, he/she unwinds the trade to cut loss.

If the investment moves as he/she had expected, he/she raises the stop level to

protect the profits.

The key to technical trading is to find those typical buy or sell patterns from

the market. Some traders work very hard looking for good trading signals. Besides

constantly screening through the investments during trading hours, they examine

hundreds or even thousands of investments every day after hours, looking for

candidates that may develop into certain patterns in the next trading day. Because

good signals are rare, it is difficult for traders to find them when they are still valid.

For this reason, traders sometimes cut comers. Under the pressure to trade, they

may have to accept less-than-perfect patterns and execute trades. Or if they finally

find a perfect pattern, they tend to put on more capital in a single trade than they

should for optimal risk management. Of course, the better alternative is to diversify

the trading capital into a few very good trades, provided that they can be found. _

Some conventional trade stations allow users to search for investments that

meet certain criteria, such as conditions on the price, volume and other indicators.

However, these tools require that the users input their own search criteria. This is

disadvantageous because most users do not know what criteria will lead to good

trading signals. Furthermore, because these search tools are so simplistic, no

matter what search criteria a user inputs the search often results in information of

little use. Moreover, the trade stations and other software available in today's

market do not offer users the ability to search for investment chart patterns.

What is desired, therefore, is an automated system for assisting investors in

deciding whether to buy or sell investments which automatically analyzes investments

to determine if buy or sell indicators are present, which is capable of automatically

analyzing a large number of investments without requiring user input, which is

capable of quickly identifying buy or sell indicators so that they can be acted upon

while they are still valid, which automatically analyzes investment charts to draw

conclusions about investments, which is capable of identifying a variety of pertinent

investment chart patterns indicative of buy or sell indicators, and which is capable of

detecting subtle investment chart patterns which may otherwise be missed by an

individual manually examining investment charts.

Summary of the Invention

Accordingly, it is an object of the present invention to provide an automated

system for assisting investors in deciding whether to buy or sell investments, which

automatically analyzes investments to determine if buy or sell indicators are present. _

Another object of the present invention is to provide a system having the above

characteristics and which is capable of automatically analyzing a large number of

investments without requiring user input.

A further object of the present invention is to provide a system having the

above characteristics and which is capable of quickly identifying buy or sell indicators

so that they can be acted upon while they are still valid.

Still another object of the present invention is to provide a system having the

above characteristics and which automatically analyzes investment charts to draw

conclusions about investments.

Yet a further object of the present invention is to provide a system having the

above characteristics and which is capable of identifying a variety of pertinent

investment chart patterns indicative of buy or sell indicators.

Still a further object of the present invention is to provide a system having the

above characteristics and which is capable of detecting subtle investment chart

patterns which may otherwise be missed by an individual manually examining

investment charts.

These and other objects of the present invention are achieved by provision of

an automated investment chart pattern search system, which includes a computer, a historical information database accessible by the computer having historical

information for a plurality of investments stored thereon, a connection to a supply of

real-time data, the real time data comprising real-time data relating to a plurality of

investments, and a templates database accessible by the computer having a plurality

of templates stored thereon. Software executing on the computer generates an

investment chart for the investment to be examined based upon the historical

information and the real-time data relating to the investment to be examined. Software

executing on the computer then retrieves at least one template from the templates

database, and performs geometric projection analysis on the retrieved template and

the investment chart to determine if a pattern exists in the investment chart. Next,

software executing on the computer retrieves at least one template from the templates

database, and performs template matching analysis on the retrieved template and the

investment chart to determine if a pattern exists in the investment chart. Software

executing on the computer then performs projection line analysis on the investment

chart to determine if a pattern exists in the investment chart.

Preferably, software executing on the computer pre-screens the historical

information and the real-time data relating to the investment to be examined to

determine whether the investment to be examined meets a threshold value for

liquidity, and the software executing on the computer performs the geometric

projection analysis, the template matching analysis and the projection line analysis

only if the investment to be examined meets the threshold value for liquidity.

Preferably, the investment to be examined is determined to meet the threshold value

for liquidity if both average daily trading volumes and average daily prices for the investment to be determined meet a threshold value. Most preferably, the investment

to be examined is determined to meet the threshold value for liquidity if the current

day's trading volume is higher than average daily trading volumes.

Preferably, the system also includes software executing on the computer for, if

it is determined that a pattern exists in the investment chart, generating and

transmitting to a user an indication that a pattern has been found.

The invention and its particular features and advantages will become more

apparent from the following detailed description considered with reference to the

accompanying drawings.

Brief Description of the Drawings

Figs. 1A and 1B are schematic views of investment charts illustrating moving

average crosses investment chart patterns;

Figs. 2A through 2D are schematic views of investment charts illustrating

candlestick trend investment chart patterns;

Fig. 3 is a schematic view of an investment chart illustrating a head-and-

shoulders investment chart pattern;

Figs. 4A and 4B are schematic views of investment charts illustrating range

breakout investment chart patterns; Figs. 5A and 5B are schematic views of investment charts illustrating triangle

breakout investment chart patterns;

Fig. 6 is a schematic view of a investment chart illustrating a cup-with-a-handle

investment chart patterns;

Figs. 7A through 7C are schematic views of investment charts illustrating triple

top/bottom investment chart patterns;

Figs. 8A and 8B are schematic views of investment charts illustrating

stochastic combo investment chart patterns;

Figs. 9A and 9B are schematic views of investment charts illustrating flag chart

patterns;

Fig. 10 is a block diagram of an investment chart pattern search system for

technical analysis in accordance with the present invention;

Fig. 11 is a block diagram of the methodology employed by the investment

chart pattern search system for technical analysis of FIG. 10;

Fig. 12 is a schematic view showing am investment chart generated by the

investment chart pattern search system for technical analysis of FIG. 10; Fig. 13 is a schematic view showing greater detail of one of the particular

analysis methods used in the methodology of FIG. 11;

Figs. 14A and 14B are schematic views showing templates which may be used

with one of the particular analysis methods used in the methodology of FIG. 11 ; and

Fig. 15 is a schematic view showing greater detail of one of the particular

analysis methods used in the methodology of FIG. 11.

Detailed Description of the Invention

Technical analysts and traders believe that certain investment chart patterns

and shapes provide signals of profitable trading opportunities. Many professional

and amateur traders claim that they consistently make trading profits by following

such signals. Referring now to FIG. 1A through FIG. 9B, several known types of

investment patterns and the corresponding trading strategies that give the investor a

strategic trading advantage are shown. As the actual investment chart patterns, and

their corresponding meanings, are known to those skilled in the art, only a brief

description of each is given here.

Referring first to FIGS. 1A and 1B, the evolution of investment prices over

time can be seen as a shorter-term, random oscillation, on top of a longer-term

trend. Most investments show a rather "rhythmic" short-term oscillation with a typical _ _

cycle of about 14 to 25 days. If we assume that such a cycle does exist, we can

predict that the investment price will continue to go through the moving average line

after it is crossed, as illustrated in FIG. 1A. More specifically, FIG. 1A shows an

investment chart 102 illustrating an investment price 104 as it crosses down through

its 20-day moving average 106 with a large momentum. This is a likely down

pattern, and a sell indicator.

For an investment in an obvious long-term trend, the 50-day moving average

line usually damps out most of the shorter-term oscillations; therefore, this can be

used as a reliable "moving support line." A good trading strategy is to buy the

investment if it is in an up trend and if the price bounces back up after it touches or

lightly penetrates the 50-day moving average. FIG. 1B shows an investment chart

108 illustrating an investment price 110 touching its 50-day moving average 112

which is in an up trend. The corresponding opposite trading strategy is to "short" the

investment if it is in a down trend and if the prices drops back down after it touches

or lightly penetrates the 50-day moving average.

A candle stick chart is a good presentation of an investment's momentum.

On a candlestick chart, one can easily see the secession of up days, down days and

sudden changes in the investment pattern. Thus, candlestick charts are desirable

for viewing trend reversal patterns, as are shown in FIGS. 2A through 2D. FIG. 2A

shows a trend reversal pattern that is sometimes called a "First Sunny Day" pattern.

As shown in investment chart 114, after a long, long decline, the investment price 1 16 suddenly goes up in significant magnitude. Furthermore, it closes much higher

above its open. This First Sunny Day pattern sends a short-term buy signal. The

trading strategy for a First Sunny Day pattern is to buy the investment and hold until

it recovers the range lost by the recent secession of down days, or to cut losses if it

drops back to the prior day's low. This pattern usually signals a very good profit-risk

ratio. The converse trend reversal pattern, shown in FIG. 2B, is sometimes called a

"Sudden Cloudy Day" pattern. As illustrated in investment chart 118, after a long,

long rise, the investment price 120 suddenly drops; its close is much lower than its

open. This pattern hints that something has suddenly gone wrong with the

investment, and indicates that one should sell the investment without delay. In this

example of the Sudden Cloudy Day pattern, the trading strategy is to short the

investment and hold it until it retraces the recent secession of up days or to cut

losses if it breaks the previous day's high.

For longer-term trend-reversal patterns, we often look for the "Shooting Star"

or for "T-Shape" patterns. In the investment chart 122 illustrated in FIG. 2C, the

investment price 124 soared considerably in the past few days. At present, it shoots

up, as if exhausting all its energy. This Shooting Star pattern hints that the market

has lost confidence in the further potential of the investment, indicating a likely

downturn. Conversely, in the investment chart 126 illustrated in FIG. 2D, the

investment price 128 dropped over several days. Presently, it drops precipitously,

then bounces back to close near the open, forming a "T" shape. This may indicate that the market has finally decided the investment price has dropped enough, with

many bullish traders and investors coming to the rescue.

The "Head-and-Shoulders" pattern is believed to be one of the most reliable

trend-reversal patterns. FIG. 3 shows an investment chart 130 illustrating an

example of a short-term Head-and-Shoulders pattern. The strategy indicated by the

Head-and-Shoulders pattern is to short-sell the investment as the price 132 drops

down the second shoulder 134, especially if the volume also goes up. Then one can

hold the position until the price drops all the way down to the level of significant

supports and consolidation. This signal also indicates that one should cut loss if the

price rises above the tip of the head 136. A less-risky stop-loss strategy is to cut

losses if the price goes back up the top of the second shoulder 134.

Another type of investment chart pattern is known as the "Range Breakout"

pattern. In FIG. 4A an investment chart 138 illustrating a typical Range Breakup

pattern, a strong buy signal, is shown. Note that the investment price 140 breaks

out of the trading range defined by the two range lines 142, 144 with large volume.

The trading strategy for a Range Breakup is just the opposite as that of a Head-and-

Shoulders: the pattern indicates a strategy of buying as the investment breaks the

upper range line with larger-than-average volume, and continuing to hold until the

investment has risen a distance comparable to the height of the range. If the price

goes down instead, one should stop losses as it penetrates the upper range line. In

FIG. 4B an investment chart 146 illustrating a typical Range Breakdown pattern, a strong sell signal, is shown. Here, the investment price 148 breaks out of the trading

range defined by the two range lines 150, 152 with large volume. The trading

strategy for a Range Breakdown is just the opposite as that of a Range Breakup: sell

as the investment breaks the lower range line with larger than average volume, and

continue to hold until the investment has fallen a distance comparable to the height

of the range. If the price goes up instead, one should stop loss as it penetrates the

lower range line.

Referring now to FIGS. 5A and 5B, investment chart patterns known as

"Triangle Breakouts" are shown. FIG. 5A shows an investment chart 154 which

illustrates a Triangle Breakup pattern, a strong buy signal. In the past two months

the investment price 156 has consolidated with declining amplitude (as illustrated by

the two range lines 158, 160) and volume. At present, it breaks out above the upper

range line with high volume, signaling a possible new up trend. Similarly, FIG. 5B

shows an investment chart 154 which illustrates a Triangle Breakdown pattern, a

strong sell signal. In the past two months the investment price 164 has consolidated

with declining amplitude (as illustrated by the two range lines 166, 168) and volume.

At present, it breaks out below the lower range line with high volume, signaling a

possible new down trend.

Another type of investment chart pattern is known as the "Cup-With-A-

Handle" pattern. In FIG. 6 an investment chart 170 illustrating a typical Cup-With-A-

Handle breakup pattern is shown. The strategy is to buy the investment as the price 172 breaks up with larger than average volume, then cut losses if it drops back to

the pre-breakup level 174. If it goes up as expected, this pattern calls for

successively raising the stop levels, giving the trade a chance to capture most of the

up potential. The Cup-With-A-Handle breakup pattern is a strong buy signal, and

according to statistics, investment prices rise 70% of the time after such a breakup.

However, according to extensive experience and historical testing, the opposite

pattern of the Cup-With-A-Handle does not work nearly as well.

Referring now to FIGS. 7A through 7C, investment chart patterns known as

"Triple Top/Bottom" patterns are shown. FIG. 7A shows an investment chart 176

which illustrates a bounce-back from an up-trend Triple Bottom, a buy signal. Risk

involved is low, as one can sell the investment if its price 178 turns back and

penetrates the line 180. FIG. 7B shows an investment chart 182 which illustrates a

Triple Bottom breakdown with large volume, a sell signal. Risk is small because one

can cover the short position if the investment price 184 turns back up to the line 186.

FIG. 7C shows an investment chart 188 which illustrates a bounce-back from Triple

Top, a sell signal. Again, one can cover if the investment price 190 turns back up to

the line 192.

Investment chart patterns known as "Stochastic Combo" patterns are shown

in FIGS. 8A and 8B. The Stochastic Combo trading strategy is based on the

investment price satisfying a combination of conditions of the various technical

indicators. For the buy signal, shown on investment chart 194 in FIG. 8A, the investment will have to show a long-term up trend, the momentum indicators will

have to indicate that the investment is oversold, the RSI will have to be low, and the

price 196 will have to be near the lower Bollinger Band 198, showing starting signs

of bounce-back. For the sell signal, shown on investment chart 200 in FIG. 8B, the

investment will have to show a long-term down trend. Momentum indicators will

have to signal that the investment is overbought, that the RSI is high, that the MACD

is favorable, and that the price 202 is close to the upper Bollinger Band 204,

showing first signs of decline. The trading strategy for both of these cases is to ride

on a general trend and at the same time enhance profits by capturing the likely

short-term mean reversion. If the investment moves as expected, one should hold

until the price penetrates the center Bollinger Band (a 14-to-20-day moving

average), or even until the price nears the opposite Bollinger Band. If, however, the

price moves in the wrong direction, one should cut losses shortly after it goes

beyond the prior day's intra-day extreme.

Another type of investment chart pattern is known as the "Flag" pattern. In

FIG. 9A an investment chart 206 illustrating a typical Bullish Flag pattern, a buy

signal, is shown. Note that the investment price 208 showed a dramatic increase

with a high volume, and then that it has consolidated with declining amplitude (as

illustrated by the two range lines 210, 214). Conversely, FIG. 9B shows an

investment chart 214 illustrating a typical Bearish Flag pattern, a sell signal. Note

that the investment price 216 showed a dramatic decrease with a high volume, and then that it has consolidated with declining amplitude (as illustrated by the two range lines 218, 220).

As discussed above, the above-described investment chart patterns, and their

corresponding meanings, are known to those skilled in the art. However,

traditionally a trader was required to sit at the screen of a trade station manually

examining and reexamining, as market conditions and investment performance

fluctuate, all the investment charts for numerous investments on the screen. This

could require that the trader examine hundreds or even thousands of investment

charts every day. Moreover, because investment chart patterns may be subtle, and

therefore difficult to recognize, they may be easily missed by traders manually

searching through numerous investment charts. Furthermore, because good signals

are rare, it is difficult for traders to find them when they are still valid - by the time a

trader recognizes a pertinent stock chart pattern, it may be too late to act on the

pattern.

Referring now to FIG. 10, the present invention remedies these, and other,

deficiencies of the prior art by providing an investment chart pattern search system

10 for technical analysis. System 10 includes a computer 12 having executing

thereon investment chart pattern search software 14. System 10 also includes a

historical information database 16 accessible by computer 12 having stored thereon

historical information relating to a plurality of financial investments. This historical

information may comprise numerous types of information, but at a minimum includes information relating to past prices of the investments and past trading volumes of the

financial investments. Historical information database 16 may comprise a part of

computer 12, or may be remotely located and maintained.

In addition, computer 12 is in communication with a real-time data stream 18

which supplies continually updating real-time information relating to a plurality of

financial investments. Like the historical information stored on historical information

database 16, the real-time data supplied by data stream 18 may comprise numerous

types of information, but at a minimum includes information relating to current prices

of the investments and current trading volumes of the financial investments. System

10 also includes a templates database 20, which has a plurality of various templates

stored thereon, the configuration and purpose of which are described fully below.

Computer 12, and more particularly investment chart pattern search software

14, uses the historical information stored on historical information database 16, the

real-time data supplied by data stream 18, and the templates stored on templates

database 20 to generate and display to one or more users 22 indications of buy or

sell indicators 24, as set forth in greater detail below with reference to FIGS. 11-15.

Referring first to FIG. 11 , the overall methodology by which investment chart

pattern search software 14 operates is shown. As a preliminary matter, it should be

noted that system 10 can be configured to check substantially any number of

investments. For example, system 10 may be configured to check all stocks on the three major exchanges (NYSE, AMEX and NASDAQ), the stocks on only one or two

of the exchanges, particular stocks on the exchanges, or other investments in other

markets. To maximize utility, system 10 is preferably configured to check all stocks

on the three major exchanges.

First, at 26, historical information is retrieved from historical information

database 16, and real-time data is received from data stream 18. This information is

used to determine if the particular investment being examined meets a

predetermined liquidity threshold. Stocks which do not meet this threshold are

excluded, and system 10 moves on to examine the next investment. For example,

stocks having low average daily volumes and low prices may be excluded. More

specifically, for all breakout patterns, the current day's trading volume will have to be

higher than the average daily volume; investments that do not show a higher

proportional current trading volume are excluded. This pre-screening process

greatly increases search speed by excluding at an early stage undesirable

investments.

If the investment being examined meets the pre-screening criteria at 26,

investment chart pattern search software 14 then uses historical information

retrieved from historical information database 16 and real-time data received from

data stream 18 to generate, at 28, an investment chart for the investment being

examined. The investment chart may include numerous information, but at a

minimum includes an indication of the historical and current pricing of the - -

investment. Many systems and methods for generating and plotting investment

charts are known, and therefore, the specific methodology for generating the

investment charts is not discussed in detail herein.

It should be noted, however, that the time interval between successive points

on the investment chart may be varied. More specifically, and as illustrated on

investment chart 29 of FIG. 12, the time intervals T between points on investment

chart 29 may comprise days (as is typical of known charts), or may comprise

intraday intervals, such as hours or minutes. Such intraday intervals allow the

identification of patterns sooner and with greater accuracy than if daily time intervals

are used, particularly when the pattern is subtle.

Next, investment chart pattern search software 14 employs a geometric

projection analysis, at 30, to determine whether certain patterns exist in the

investment chart. Although not so limited, this analysis is particularly well-suited to

identify range breakout and triangle breakout pattern. In order to perform this

analysis, investment chart pattern search software 14 first retrieves from templates

database 20 a template which is applicable for a particular type of investment chart

pattern. For example, as shown in FIG. 13, the retrieved template may comprise a

triangle breakout pattern template 32.

Investment chart pattern search software 14 then projects the investment

chart 34 for the investment being examined onto the template with varying dilations, translations and rotations. It should be noted that the last point 36 on investment

chart 34, representing the most current pricing information, is not used at this stage.

Investment chart pattern search software 14 then determines the number of edges

of investment chart 34 which hit the border lines 38, 40 of template 32, and

computes the ratio of the number of these hitting edge points to the total number of

points in order to determine the level of resemblance to the template 32. If the level

of resemblance of the investment chart 34 to the template 32 is greater than a

threshold value, the last point 36 of investment chart 34 is examined to determine

whether it is a breakup or breakdown. If the level of resemblance of the investment

chart 34 to the template 32 is not greater than the threshold value, other templates

(i.e., other triangle breakout pattern templates, range breakout templates, and other

types of pattern templates) are retrieved and compared to the investment chart in a

similar manner.

Investment chart pattern search software 14 next employs a template

matching analysis, at 42, to determine whether certain patterns exist in the

investment chart. This analysis is particularly well-suited to identify those patterns

not readily identifiable by the geometric projection analysis described above, and the

projection line analysis described below. For example, the template matching

analysis may be used to search for cup-with-a-handle patterns and head and

shoulder patterns. _ _

In order to perform the template matching analysis, investment chart pattern

search software 14 first retrieves from templates database 20 a template which is

applicable for a particular type of investment chart pattern. For example, the

retrieved template may comprise a cup-with-a-handle pattern template 44 (FIG. 14A)

or a head-and-shoulders pattern template 46 (FIG. 14B).

Investment chart pattern search software 14 then projects the investment

chart for the investment being examined onto the template, and determines a

correlation coefficient between the investment chart and the pattern. If the

correlation coefficient is above a threshold value, a match is found. If the correlation

coefficient is not above a threshold value, other templates are retrieved and

compared to the investment chart in a similar manner. As various mathematical

methods are known for determining a correlation coefficient between two graphs,

such a process is not described herein in detail. It should be noted however, that

setting the threshold value for the correlation coefficient at 0.9 has produced

acceptable results.

It should also be noted that the number of templates with which the

investment chart is compared will directly impact the effectiveness of the search. In

other words, the more templates that are provided for each pattern (i.e., the cup-

with-a-handle pattern, the head-and-shoulders pattern, etc.) the better the chances

of accurately identifying that the pattern exists in the investment chart. However, the

greater the number of templates provided, the greater the time required for the analysis. It has been found that providing on the order of several hundred templates

for each pattern being investigated provides excellent matching results, while also

providing acceptable analysis times.

Investment chart pattern search software 14 then employs a projection line

analysis, at 48, to determine whether certain patterns exist in the investment chart.

Although not so limited, this analysis is particularly well-suited to identify triple

top/bottom patterns in investment charts.

In order to perform the projection line analysis, investment chart pattern

search software 14 begins with the investment chart 50 for the investment being

examined. Investment chart pattern search software 14 then generates projecting

lines 52 with all different angles (represented by arrow 54) from the last point 56 and

the second to last point 58 (as shown in FIG. 15) of investment chart 50 to find the

borderline to which the entire graph is on one side. Investment chart pattern search

software 14 then determines the number of points that are on the borderline, or

within a small tolerance thereof. If the points are sufficiently far apart, and the

number of points on the borderline, or within a small tolerance thereof, if three or

more, then investment chart pattern search software 14 determines that a triple

top/bottom pattern is present, and examines the position of the last point with

respect to the line to determine whether it is a breakout or a bounce back. Finally, investment chart pattern search software 14, at 60, generates an

indication 24 of whether any buy or sell indicator patterns were found for the

investment being examined. Indicator 24 may comprise a textual indication that a

pattern was found (e.g. "ABC stock shows a Cup-With-A-Handle breakup with above

average volume. Buy now and stop loss at 40"), or may comprise a graphical

indication that a pattern was found. For example, if a triangle breakout pattern is

found, the indication may comprise a pattern projection of the appropriate triangle

breakout pattern on a stock chart (as shown in FIGS. 5A and 5B) which is displayed

to the user. Of course, the indication may comprise both a textual indication and a

graphical indication in combination. The indicator 24 may then be transmitted to

user 22, as shown in FIG. 10. Investment chart pattern search software 14 then

moves on to the next investment to be examined and repeats the above process.

The present invention, therefore, provides an automated system for assisting

investors in deciding whether to buy or sell investments which automatically analyzes

investments to determine if buy or sell indicators are present, which is capable of

automatically analyzing a large number of investments without requiring user input,

which is capable of quickly identifying buy or sell indicators so that they can be acted

upon while they are still valid, which automatically analyzes investment charts to

draw conclusions about investments, which is capable of identifying a variety of

pertinent investment chart patterns indicative of buy or sell indicators, and which is

capable of detecting subtle investment chart patterns which may otherwise be

missed by an individual manually examining investment charts. Although the invention has been described with reference to a particular

arrangement of parts, features and the like, these are not intended to exhaust all

possible arrangements or features, and indeed many other modifications and

variations will be ascertainable to those of skill in the art.

Claims

What is claimed is

1 An automated investment chart pattern search system comprising a computer,

a historical information database accessible by said computer, said historical

information database having historical information for a plurality of investments stored thereon,

a connection to a supply of real-time data, said real time data comprising real¬

time data relating to a plurality of investments,

a templates database accessible by said computer, said templates database

having a plurality of templates stored thereon,

software executing on said computer for generating an investment chart for the

investment to be examined based upon the historical information and the real-time

data relating to the investment to be examined,

software executing on said computer for retrieving at least one template from

said templates database, and for performing geometric projection analysis on the

retrieved template and the investment chart to determine if a pattern exists in the

investment chart,

software executing on said computer for retrieving at least one template from

said templates database, and for performing template matching analysis on the

investment chart, and software executing on said computer for performing projection line analysis on

the investment chart to determine if a pattern exists in the investment chart

2. The system of claim 1 further comprising software executing on said computer

for pre-screening the historical information and the real-time data relating to an

investment to be examined to determine whether the investment to be examined

meets a threshold value for liquidity, and wherein said software executing on said

computer performs the geometric projection analysis, the template matching analysis

and the projection line analysis if the investment to be examined meets the threshold

value for liquidity.

3. The system of claim 2 wherein the investment to be examined is determined to

meet the threshold value for liquidity if both average daily trading volumes and

average daily prices for the investment to be determined meet a threshold value.

4. The system of claim 2 wherein the investment to be examined is determined to

meet the threshold value for liquidity if the current day's trading volume is higher than

average daily trading volumes.

5. The system of claim 1 further comprising software executing on said computer

for, if it is determined that a pattern exists in the investment chart, generating and

transmitting to a user an indication that a pattern has been found.

6. The system of claim 5 wherein the indication comprises a textual indication.

7. The system of claim 5 wherein the indication comprises a graphical indication.

8. The system of claim 1 wherein a time interval between successive points on the

investment chart comprises an intraday time interval.

9. The system of claim 1 wherein said software executing on said computer for

retrieving at least one template from said templates database, and for performing

geometric projection analysis on the retrieved template and the investment chart to

determine if a pattern exists in the investment chart comprises:

software executing on said computer for retrieving a template from said

templates database;

software executing on said computer for projecting the investment chart onto

the retrieved template with varying dilations, translations and rotations;

software executing on said computer for determining a number of edge points

of the investment chart which hit border lines of the template, and for computing a ratio

of the number of hitting edge points to the total number of edge points in order to

determine a level of resemblance of the investment chart to the template; and

software executing on said computer for determining that a pattern exists in the

investment chart if the level of resemblance is greater than a threshold value.

10. The system of claim 9 wherein said software executing on said computer for

determine if a pattern exists in the investment chart further comprises software executing on said computer for examining a last point of the investment chart to

determine whether it is a breakup or breakdown.

11. The system of claim 9 wherein the template is a range breakout pattern template.

12. The system of claim 9 wherein the template is a triangle breakout pattern

template.

13. The system of claim 1 wherein said software executing on said computer for

template matching analysis on the retrieved template and the investment chart to

determine if a pattern exists in the investment chart comprises:

software executing on said computer for retrieving a template from said

templates database; software executing on said computer for projecting the investment chart onto

the template, and determining a correlation coefficient between the investment chart

and the pattern; and software executing on said computer for determining that a pattern exists in the

investment chart if the correlation coefficient is greater than a threshold value.

14. The system of claim 13 wherein the threshold value is 0.9.

15. The system of claim 13 wherein the template is a cup-with-a-handle pattern template.

16. The system of claim 13 wherein the template is a head-and-shoulders pattern

template.

17. The system of claim 1 wherein said software executing on said computer for

performing projection line analysis on the investment chart to determine if a pattern

exists in the investment chart comprises: software executing on said computer for generating projecting lines with varying

angles from a point on the investment chart to find a borderline to which the entire

graph is on one side;

software executing on said computer for determining a number of points on the

investment chart that fall on the borderline within a small tolerance thereof; and

software executing on said computer for determining that a triple top/bottom

pattern is present in the investment chart if the number of points on the investment

chart that fall on the borderline within a small tolerance thereof is three or more.

18. The system of claim 17 wherein said software executing on said computer for

exists in the investment chart further comprises software executing on said computer

for examining a last point of the investment chart to determine whether it is a breakout

or a bounce back.

19. The system of claim 17 wherein the point on the investment chart from which

the projecting lines are generated comprises the last point on the investment chart.

20. The system of claim 17 wherein the point on the investment chart from which

the projecting lines are generated comprises the second to last point on the

investment chart.

21. An automated investment chart pattern search system comprising:

a computer;

a historical information database accessible by said computer, said historical

information database having historical information for a plurality of investments stored

thereon; a connection to a supply of real-time data, said real time data comprising real¬

time data relating to a plurality of investments; a templates database accessible by said computer, said templates database

having a plurality of templates stored thereon; software executing on said computer for generating an investment chart for the

data relating to the investment to be examined; software executing on said computer for retrieving a template from said

templates database and for projecting the investment chart onto the retrieved template

with varying dilations, translations and rotations; software executing on said computer for determining a number of edge points

of the investment chart which hit border lines of the template, and for computing a ratio of the number of hitting edge points to the total number of edge points in order to

determine a level of resemblance of the investment chart to the template; and

investment chart if the level of resemblance is greater than a threshold value.

22. The system of claim 21 further comprising software executing on said computer

for examining a last point of the investment chart to determine whether it is a breakup

or breakdown.

23. The system of claim 21 wherein the template is a range breakout pattern

template.

24. The system of claim 21 wherein the template is a triangle breakout pattern

template.

25. An automated investment chart pattern search system comprising:

a computer; a historical information database accessible by said computer, said historical

thereon; a connection to a supply of real-time data, said real time data comprising real^¬

data relating to the investment to be examined;

software executing on said computer for retrieving a template from said

templates database, for projecting the investment chart onto the template, and for

determining a correlation coefficient between the investment chart and the pattern;

and

26. The system of Claim 25 wherein the threshold value is 0.9.

27. The system of claim 25 wherein the template is a cup-with-a-handle pattern

template.

28. The system of claim 25 wherein the template is a head-and-shoulders pattern

template.

29. An automated investment chart pattern search system comprising:

time data relating to a plurality of investments;

software executing on said computer for generating an investment chart for the

data relating to the investment to be examined;

software executing on said computer for generating projecting lines with varying

graph is on one side;

software executing on said computer for determining a number of points on the

software executing on said computer for determining that a triple top/bottom

30. The system of claim 29 further comprising software executing on said computer

or a bounce back.

31. The system of claim 29 wherein the point on the investment chart from which

32. The system of claim 29 wherein the point on the investment chart from which

the projecting lines are generated comprises the second to last point on the

investment chart.

33 An automated investment chart pattern search method comprising the steps of providing a computer,

providing a historical information database accessible by the computer, the

historical information database having historical information for a plurality of

investments stored thereon,

providing a connection to a supply of real-time data, the real time data

comprising real-time data relating to a plurality of investments,

providing a templates database accessible by the computer, the templates

database having a plurality of templates stored thereon,

generating an investment chart for the investment to be examined based upon

the historical information and the real-time data relating to the investment to be

examined,

retrieving at least one template from the templates database, and performing

determine if a pattern exists in the investment chart,

retrieving at least one template from the templates database, and performing

determine if a pattern exists in the investment chart, and

performing projection line analysis on the investment chart to determine if a

pattern exists in the investment chart

34 The method of claim 33 further comprising the step of pre-screening the

historical information and the real-time data relating to an investment to be examined to determine whether the investment to be examined meets a threshold value for

liquidity, and wherein said steps of performing the geometric projection analysis,

performing the template matching analysis and performing projection line analysis are

performed only if the investment to be examined meets the threshold value for liquidity.

35. The method of claim 34 wherein the investment to be examined is determined

to meet the threshold value for liquidity if both average daily trading volumes and

36. The method of claim 34 wherein the investment to be examined is determined

to meet the threshold value for liquidity if the current day's trading volume is higher

than average daily trading volumes.

37. The method of claim 33 further comprising the step of, if it is determined that a

pattern exists in the investment chart, generating and transmitting to a user an

indication that a pattern has been found.

38. The method of claim 37 wherein the indication comprises a textual indication.

39. The method of claim 37 wherein the indication comprises a graphical indication.

40. The method of claim 33 wherein a time interval between successive points on

the investment chart comprises an intraday time interval. _

41. The method of claim 33 wherein said step of retrieving at least one template

from said templates database, and performing geometric projection analysis on the

investment chart comprises the steps of:

retrieving a template from the templates database;

projecting the investment chart onto the retrieved template with varying

dilations, translations and rotations;

determining a number of edge points of the investment chart which hit border

lines of the template, and computing a ratio of the number of hitting edge points to the

total number of edge points in order to determine a level of resemblance of the

investment chart to the template; and

determining that a pattern exists in the investment chart if the level of

resemblance is greater than a threshold value.

42. The method of claim 41 wherein said step of retrieving at least one template

investment chart further comprises the step of examining a last point of the investment

chart to determine whether it is a breakup or breakdown.

43. The method of claim 41 wherein the template is a range breakout pattern

template. _

44. The method of claim 41 wherein the template is a triangle breakout pattern template.

45. The method of claim 33 wherein said step of retrieving at least one template

from said templates database, and for performing template matching analysis on the

investment chart comprises the steps of:

retrieving a template from said templates database;

projecting the investment chart onto the template, and determining a correlation

coefficient between the investment chart and the pattern; and

determining that a pattern exists in the investment chart if the correlation

coefficient is greater than a threshold value.

46. The method of Claim 45 wherein the threshold value is 0.9.

47. The method of claim 45 wherein the template is a cup-with-a-handle pattern

template.

48. The method of claim 45 wherein the template is a head-and-shoulders pattern

template.

49. The method of claim 33 wherein said step of performing projection line analysis

on the investment chart to determine if a pattern exists in the investment chart

comprises the steps of: generating projecting lines with varying angles from a point on the investment

chart to find a borderline to which the entire graph is on one side;

determining a number of points on the investment chart that fall on the

borderline within a small tolerance thereof; and

determining that a triple top/bottom pattern is present in the investment chart if

the number of points on the investment chart that fall on the borderline within a small

tolerance thereof is three or more.

50. The method of claim 49 wherein said step of performing projection line analysis

on the investment chart to determine if a pattern exists in the investment chart further

comprises the step of examining a last point of the investment chart to determine

whether it is a breakout or a bounce back.

51. The method of claim 49 wherein the point on the investment chart from which

52. The method of claim 49 wherein the point on the investment chart from which

the projecting lines are generated comprises the second to last point on the

investment chart.

53. An automated investment chart pattern search method comprising the steps of:

providing a computer; providing a historical information database accessible by the computer, the

investments stored thereon;

providing a connection to a supply of real-time data, the real time data

comprising real-time data relating to a plurality of investments;

providing a templates database accessible by the computer, the templates

database having a plurality of templates stored thereon;

generating an investment chart for the investment to be examined based upon

examined;

retrieving a template from the templates database and projecting the

investment chart onto the retrieved template with varying dilations, translations and

rotations; determining a number of edge points of the investment chart which hit border

total number of edge points in order to determine a level of resemblance of the

investment chart to the template; and determining that a pattern exists in the investment chart if the level of

resemblance is greater than a threshold value.

54. The method of claim 53 further comprising the step of examining a last point of

the investment chart to determine whether it is a breakup or breakdown. _4Q

55. The method of claim 53 wherein the template is a range breakout pattern template.

56. The method of claim 53 wherein the template is a triangle breakout pattern template.

57. An automated investment chart pattern search method comprising the steps of:

providing a computer;

providing a historical information database accessible by the computer, the

investments stored thereon;

providing a connection to a supply of real-time data, the real time data

comprising real-time data relating to a plurality of investments;

providing a templates database accessible by the computer, the templates

database having a plurality of templates stored thereon;

generating an investment chart for the investment to be examined based upon

examined;

retrieving a template from the templates database, projecting the investment

chart onto the template, and determining a correlation coefficient between the

investment chart and the pattern; and

determining that a pattern exists in the investment chart if the correlation

coefficient is greater than a threshold value. - -

58. The method of claim 57 wherein the threshold value is 0.9.

59. The method of claim 57 wherein the template is a cup-with-a-handle pattern

template.

60. The method of claim 57 wherein the template is a head-and-shoulders pattern

template.

61. An automated investment chart pattern search method comprising the steps of:

investments stored thereon;

providing a connection to a supply of real-time data, the real time data

comprising real-time data relating to a plurality of investments; generating an investment chart for the investment to be examined based upon

examined;

generating projecting lines with varying angles from a point on the investment

chart to find a borderline to which the entire graph is on one side;

determining a number of points on the investment chart that fall on the

borderline within a small tolerance thereof; and determining that a triple top/bottom pattern is present in the investment chart if

tolerance thereof is three or more.

62. The method of claim 61 further comprising the step of examining a last point of

the investment chart to determine whether it is a breakout or a bounce back.

63. The method of claim 61 wherein the point on the investment chart from which

64. The method of claim 61 wherein the point on the investment chart from which

the projecting lines are generated comprises the second to last point on the

investment chart.