Advanced Pattern Recognition For Trading

Creating a Pattern Recognition Trading Strategy in TradingView

Pattern recognition is always an exciting field when it comes to financial research and trading. This article discusses a patterns-based strategy applied on a famous technical indicator.

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The 8–3 Pattern

Pattern can come in all shapes in forms, from price patterns to volume patterns and even timing patterns. The 8–3 is a simple pattern that relies on successive conditions on different variables to be realized. The following are the conditions for the 8–3 pattern:

• A buy pattern occurs after eight successive close prices where each close price is lower than the close price three periods ago.

• A sell pattern occurs after eight successive close prices where each close price is higher than the close price three periods ago.

The strategy takes the 8–3 a bit further and applies the conditions on the RSI with an extra step.

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Creating and Coding the Strategy

The strategy has the following rules:

• For a long signal, the RSI must shape a 8–3 pattern with the last value below 30.

• For a short signal, the RSI must shape a 8–3 pattern with the last value above 70.

The following Figure shows the signal chart on EURUSD:

Signal chart

The code of the startegy on TradingView is as follows:

study("8-3 RSI Pattern", overlay = true)

transp   = input(0)
Numbers  = input(true)
SR       = input(true)
Barcolor = input(true)

TD = rsi(close, 14) > rsi(close, 14)[3] ?nz(TD[1])+1:0
TS = rsi(close, 14) < rsi(close, 14)[3] ?nz(TS[1])+1:0

TDUp = TD - valuewhen(TD < TD[1], TD , 1 )
TDDn = TS - valuewhen(TS < TS[1], TS , 1 )

plotshape(TDDn==8 and rsi(close, 14) < 30?true:na, style = shape.triangleup,   color = green, location =  location.belowbar, size = size.small)
plotshape(TDUp==8 and rsi(close, 14) > 70?true:na, style = shape.triangledown, color = red,   location =  location.abovebar, size = size.small)

The following Figure shows the signal chart on DXY:

Signal chart

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