AutoWave Fibonacci Pattern Finder

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					AutoWave™ Fibonacci Pattern Finder




          Draft of 10 July 2003




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Introduction

AutoWave™ is a new family of tools from Quote.com that finds Fibonacci price patterns,
and suggests patterns that may emerge in the future.

AutoWave™ is open and does nothing in secret. It applies, automatically, a virtual
Fibonacci Projection tool in as many places as possible on the chart, and reports patterns
that match your definition of success.

To use AutoWave™ during the concept-expansion and early testing period, one’s
QCharts logon must be registered with the beta program. (Send email to
mcondra@quote.com.)


Getting and Installing the Latest Version

AutoWave™ was first released in QCharts 4.4, version 4.4.2.0, Build C Beta. That file is:

       http://www.quote.com/qcdownload/SetupQCharts44-4.4.2.0_BuildC_Beta.exe.

Please look for and download the latest build, by installing the latest-versioned file in this
location:

       http://www.quote.com/qcdownload .

After installation, AutoWave™ can be turned on or off for any chart by left-clicking a
toolbar button on the new Studies Quickbar:




Right-clicking the same button is used to set AutoWave™ properties.




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What AutoWave™ Can Draw

AutoWave™ can display three things: 1) existing patterns; 2) possible future patterns;
and 3) a “ZigZag” line that connects and makes visible the extremes on which patterns
are based. These elements can be selected independently by checking boxes on the first
property page:




These are existing patterns:




These are possible future patterns:




This is the ZigZag line:




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The three elements can be combined in one chart.




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Configuring AutoWave™

Wave Size: The Most Important Setting. The single most important setting in
AutoWave™ -- and the thing you will want to tinker with -- is Wave Size. Wave Size is a
number that defines a high or low price extreme, by stating the number of surrounding
bars on either side that must not be higher or lower than the candidate extreme. Another
way to think of it is: Wave Size + 1 is the minimum distance between extremes of the
same high or low type.




Although Wave Size is 20 by default, in your experimentation please consider reducing
it, as well as the number of bars displayed on charts where AutoWave™ is enabled. Some
very beautiful AutoWave™ charts have been produced with high Wave Sizes and large
numbers of bars. But the process of extracting the “big picture” information about the
price patterns might be easier if there are fewer bars and smaller wave sizes. Please
experiment and let us know.

The Effect of Changing Wave Size. Below, Wave Size was set at 30, 20, 10 and 5.
(The ZigZag line was turned on to display the extremes.).




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Subdividing Wave Size. A checkbox on the property page will cause AutoWave™ to
look for additional extremes, in places where there are two extremes of the same high or
low type next to each other. These points need a name, and we’re calling them
MicroExtremes.



Both charts have Wave Size = 20; on the right, the “subdividing”checkbox is checked.




Choosing Non-Standard Fields for High and Low Extremes. By default, High and
Low fields are used for high and low extremes. However, you can pick from several
choices:




The effect of switching from the High/Low fields can be dramatic. In the first pair of
images, the number of patterns was reduced when AvgHLC/AvgHLC were chosen.




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This pair of images shows a net increase in the number of recognized patterns when
AvgHLC/AvgHLC are used.




Including Off-Screen Bars in the Calculation. By default, AutoWave™ looks only at
the bars displayed on a chart window. You can extend that to include bars to left or right,
up to 10 screens’ worth. This turns out not to be particularly useful, since it’s hard to tell
what the added lines mean.

Zero and one additional screen worth of lines considered (left to right).




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Wave Ratio Table. The Wave Ratio Table contains numbers that define “desirable”
retracement ratios. These are patterns which are thought to correlate well with price
reversal.




The default numbers have simple mathematical relationships to the basic Fibonacci
number, 1.618.

Here’s a chart that shows how the Wave Ratio table is used when charting a pattern.
Extremes A, B, C and D were found just by looking at the price data. The price distances
AB, BC, and CD were measured, and the ratios calculated. It turns out ratios BC/AB and
CD/BC are close to a table value, 78.6. Because of that match, the line is drawn. A
separate measure of closeness can be used to give labels a special color (green in both
cases below).




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Displaying Patterns With and Without Reference to the Wave Table

By default, AutoWave™ shows only the patterns that come close to one of the table
ratios. You can disable the Wave Table by unchecking the box below. (This would have
the same effect as raising the error tolerance to a high number.)




Here is a chart where filtering was disabled, then enabled.




Here, filtering was enabled, and the error tolerance changed from 5 to 1 percent. Note,
fewer patterns were found when the error tolerance was lowered.




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Pattern Labeling. Pattern labels may show either the actual ratio, the nearest Wave
Table ratio, or both. A distinctive background color can be used when actual and table
ratios are very close.
.




One chart shows actual ratios, the other, table ratios.




This one shows both.




Projected (Future) Patterns

Projected patterns are enabled by clicking a checkbox on the main property page.




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Projected patterns are built by finding what future price levels would create a three-point
retracement pattern, when combined with two existing extremes and a ratio from the
Wave Ratio Table.

The two green lines below reach the right margin at a price level that would exactly
complete the 38.2 and 50.0 retracement patterns.




Kinds of Patterns: Ascending and Descending. Ascending patterns are those whose
right leg is ascending, and which may predict another high and subsequent reversal
downward. Descending patterns are those whose right leg is descending, and may predict
a low and reversal upward.

Hot Zone. The Hot Zone is a price interval surrounding the rightmost chart price, within
which AutoWave™ will display both projected highs and lows. Above the Hot Zone,
only potential tops will be shown, and below, only potential bottoms.




The Hot Zone interval can be reduced to nothing by setting its bar count to 0. Effectively,
the zone will then consist of the rightmost chart price only, and there will be no interval
around it in which both high and low projections are shown.




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The Hot Zone interval can also be expanded by raising its bar count, so that a larger
number of potential tops and bottoms will be drawn in the same price range. When
making that change, you should also increase the number of projections that can be
drawn, from its default in the range of 5.

Restricting the number of Projected Patterns. This preference puts an absolute limit
on the number of projections radiating from a single extreme.




Restricting the Distance of Projections from the Last Price. This setting controls how
far away the projections may be, as a function of the vertical distance between the
leftmost two extremes that define the swing. The default value of 500 would allow Wave
Ratio Table entries under 500 to be projected.




A value of 500 means that the farthest-out projected price level would be one that is as
far from the Hot Zone in price, as are the existing high and low extreme. This would
normally allow Wave Table ratios as highas 500 to be shown.




Limiting the number of Projections by editing the Wave Ratio Table. The table
probably contains levels you don’t consider significant. Disable a bunch of those and the
number of projections will be reduced. My own candidates for unchecking: 23 and 50.
When you remove entries, a compensating change would be to increase the Error
Tolerance setting from 5 to 10 maybe more.

Replaying the History of Projected Patterns. Because projected patterns normally
consider only the bars on screen, you can replay most the projections you would have



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seen in the past, and see how they evolved. The mouse thumbwheel and keyboard left
and right arrow keys are well suited to this.

When the market is open, some patterns come and go quickly as the Last price shown on
the chart moves. Most of those rapid changes are suppressed by keeping the Hot Zone set
to one or more bars, and not overly restricting the number of allowed projections.

Reserving Space on the Chart for Price Projections. You can modify the Auto Scale
behavior so that a little extra margin is available at top and bottom of a chart, to hold
price projections. This number is a multiple of the price range of the stock, and isn’t
affected by the projected levels themselves.




Here are images where this setting was turned off, then turned on and set to 3%.




How Settings are Stored

Each AutoWave™ study works independently; its settings can be varied without
affecting any other.

An AutoWave™ study becomes part of the chart that contains it; its settings are stored
with the chart, and in the workspace that contains the chart.

“Factory Default” Settings. QCharts contains in it a hard-coded set of preferences that
will be used for newly created studies, unless you have created customized preferences of
your own. Click the Use Factory Defaults button to apply them.

User-Defined Default Settings. At any time you can save the current study’s
preferences, and make them the default for new studies, by pressing the “Save As


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Default” button. Default settings are written into a file called AutoWaveSettings.dat, in
the Layouts directory. Default settings, if they exist, are used instead of Factory Defaults
when a new study is created. AutoWaveSettings.dat is read when QCharts starts. If
you’d like to remove the customized settings, do either of these things: 1) stop QCharts,
then delete AutoWaveSettings.dat. Or, 2) Visit the main studies property dialog,
AutoWave™ tab, and press “Use Factory Defaults”: This will copy the Factory Defaults
into AutoWaveSettings.dat.

All chart settings, including the studies it contains, are can be stored in a default layout
file and automatically be added to any new chart. Use the Layout / Set Default option on
a chart’s popup menu.


Multiple Instances of AutoWave™

You could, if you want, have multiple independent instances of AutoWave™ active on a
single chart. However, only the first, topmost study in the list can be accessed via the
button on the Studies Quickbar.

All AutoWave™ study instances can be created, edited and deleted in the same way other
QCharts studies are: from the Studies menu.

Here is a section of the main Studies menu, which becomes active whenever a chart
window receives a mouse click. The check next to AutoWave™ Study means there is at
least one AutoWave™ study present in the chart.




If you click on the AutoWave™ menu item above, the following dialo will appear. It lets
you edit, add or delete any AutoWave™ study.




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The numbers for the highlighted entry mean WaveSize is 5, High/Low are the fields used
to define extremes, and the study is hidden.




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Property Pages




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Appendix: Using Nonstandard Colors

To use a nonstandard color in AutoWave™ or anywhere else in QCharts, open a color
dropdown list, scroll to the bottom, and pick “More”.




To use one of the extended set of basic colors, click on it, then on “OK.”

To define a custom color, do this: Click on one of the custom color boxes, and then on a
basic color box, and then on “Define Custom Colors”. The dialog will then expand to the
right, displaying a rainbow-like region and a thin colored vertical strip. Move the mouse
into the rainbow-like region and click to choose a hue and saturation. Then, slide the
mouse with left button down inside the vertical strip to change luminance, making the
chosen color lighter or darker. Then press “Add to Custom Colors”, and “OK”.




                               =>




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Appendix: Gallery of Images

Here, without much comment, are images recently taken with AutoWave™. They show
some of the patterns one can find, with and without price projection. Timeframes range
from weekly to 1 minute.




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Jun Wang Jun Wang Dr
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