Tuesday, July 24, 2012

Forex Pattern Recognition Software Excellent Tool for Beginners

July 24, 2012 | by Sara Mackey

Forex trading can be a profitable and rewarding investment in these tough economic times. For the beginner it can be a bit chaotic and confusing but with the help of pattern recognizing software it can be a breeze.

Analytical forex pattern recognition software typically consists of programs that employ artificial intelligence algorithms to analyze technical analysis charts graphically. Most of the chart pattern recognition software in popular use can identify the common chart patterns. Some of them can even alert a trader to potential forex trading opportunities.

Although these pattern recognition programs cannot yet outperform an experienced technical analyst in terms of accuracy, they can usually provide a relatively quick and numerically accurate graphical analysis of a forex price chart. As a result, such software is rather quickly becoming a popular tool among technical forex traders.

What Forex Pattern Recognition Software Does: 

Although different forex pattern recognition software packages tend to vary considerably in their methods used and what outputs they offer, a number of helpful features are included in most popular software programs of this type.

Such features usually include:

  • Identifying Common Chart Patterns – By using fairly well established graphical analysis methods, computer software can now start to recognize patterns in forex market price action. Any good forex pattern recognition program should be able to identify the most common chart patterns.

  • Identifying Trends and Drawing Trend Lines – Graphical analysis can also be used to determine the direction of the prevailing market trend. Most pattern recognition software will indicate the direction of the trend on the charts they draw, and some also depict trend lines and channels. 

  • Locating Chart Pattern Breakout Points – Once a chart pattern has been identified, its well established characteristics usually provide a breakout line on a chart that — when breached — results in the generation of a pattern breakout point. This point is generally used by technical analysts to determine pattern targets. 

  • Computing Pattern Measuring Objective Targets – After a breakout from an established chart pattern has occurred, a pattern recognition program can measure the appropriate price distances that characterize each chart pattern and then project them from the breakout point to obtain a measuring objective or price target that represents a forecast for the future forex move resulting from the breakout. 

Furthermore, depending on the program’s sophistication and degree of integration with a forex trading platform, additional forex pattern recognition software features might include:

  • Fully automated or optional trading based on chart patterns. 

  • Trade opportunity alerts and signals. 

  • Technical indicators, line drawing and other technical analysis tools. 

  • Waves and corrections based on Elliott Wave Theory. 

Who Might Use Forex Pattern Recognition Software?

While most experienced technical analysts prefer to consult the charts personally, even they might benefit from using forex pattern recognition software to get some initial hints as to where their analysis might best be directed.

Furthermore, forex pattern recognition software programs can be very educational for a novice technical analyst to use. Not only can they gain a greater understanding about how professionals look at the charts, but they also can be alerted to the presence of forming or breaking chart patterns by the pattern recognition software that they might otherwise have missed due to their inexperience.

Forex pattern recognition software can also assist a technical forex trader who has a limited amount of time to spend analyzing forex charts. Such traders could benefit from having a computer to do an initial chart pattern scan and analysis for them, and then alert them to opportunities that they can then review in greater detail.

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