Elite Patterns for ETFs & Stocks:

Intraday Trading Strategies for High Profit

by DISFA Global

or over-compensated for the impact of certain market factors. S-long. GEXP. If you have this file or paper copy and didn't pay for it. including but not limited to special. the results may have under. S-short. DEXP. such as lack of liquidity. Includes appendixes and index. LLC. simulated results do not represent actual trading. incidental. and human errors. Proofreading by Judith Chien. LLC. L2S. W-short. ISBN 1449920985 By DISFA Global. Unlike an actual performance record. technical failures. DISFA Global LLC makes no representation or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaims any implied warranties of merchantability or fitness for any particular purpose and shall in no event be liable for any loss of profit or any other commercial damage. please visit www.Copyright © 2009 DISFA™ Global. The patterns and trading strategies described in this book were provided by the DISFA Global research team and are intended for educational purpose only. 2009 – Elite patterns for ETFs and Stocks: intraday trading strategies for high profit / by DISFA Global. DISFA Global and the research team are not engaged in rendering professional services. SW-short. Thank you. DISFA. All Rights Reserved worldwide. Limit of Liability and Disclaimer of Warranty: The publisher and authors have used their best efforts in preparing this book. and if assistance is required. DCO are trademarks of DISFA Global. Alimp. May not be copied or distributed without prior written permission of the Publisher. Since the trades have not been executed. and the information provided herein is provided 'as is'.com to purchase the book. . consequential. SW-long. or other damages. W-long.disfa. we recommend that the services of a competent professional trader or financial advisor be sought. L2L.

iii CONTENT ACKNOWLEDGMENTS INTRODUCTION Chapter 1 Fast reversal after exponential price drop v 1 3 Chapter 2 Fast reversal after exponential price increase Chapter 3 Price reversal after two equal waves down Chapter 4 Price reversal after two equal waves up Chapter 5 Fast reversal after two exponential waves down Chapter 6 Fast reversal after two exponential waves up Chapter 7 Two equal waves down with money flow confirmation 81 67 55 41 27 15 .

Summary statistics of patterns INDEX 176 179 154 135 123 111 95 . Detailed statistics of patterns on ETFs Appendix B.iv CONTENT Chapter 8 Two equal waves up with money flow confirmation Chapter 9 Strong trend detection Chapter 10 Down trend detection Chapter 11 Fast reversal after morning gap down Chapter 12 Combinatorial Development of Robust Trading Systems 147 Appendix A.

this is why there are no traditional authors. Teams of programmers and quality assurance engineers developed fast algorithms for pattern recognition. The team behind this work has many years of experience in advanced pattern discovery and recognition. These software systems and algorithms were used by the writers to run an indepth research project focusing on elite patterns for ETF’s and stocks. and Computational Statistics designed the architecture for DISFA™ pattern engine and Alimp™ software for automated creation of robust trading systems. capital protection and robotic trading.v ACKNOWLEDGMENTS More than sixty researchers and software developers made contributions to this book. The entire DISFA Global team authored this book. Mathematical Cybernetics. adaptive money management. Experts who hold Ph. Pattern Recognition.D. The contributions of the teams and each team member were critically important.’s in Artificial Intelligence. .

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leveraged ETFs and stocks. To deliver high quality research. . To find the best patterns. which provide the highest profit potential in short-term trading for ETFs. leveraged ETFs and stocks.e. help the trader decide which pattern fits his/her personal trading style. morning reversals. a special intelligent pattern engine. Instead of analyzing traditional patterns. As a result. Seven years ago we started a research project to answer the following question: which patterns provide the best profit opportunities? There are many good books written about chart patterns. one-minute price and volume data. and we did not want to publish one more book about known patterns. researchers used raw data. The elite patterns engine allowed us to analyze more than 12 million intraday sessions for ETFs. Statistical data. The trading system developer will find important information about the statistical quality of patterns together with lists of basic factors and parameters that define a particular type of pattern. By studying the pattern descriptions and illustrations of historical price charts. and the average price increase/decrease for each pattern. i. The book addresses two groups of readers: traders and trading systems developers. Elite patterns were analyzed for the most liquid ETFs. the following groups of highly profitable patterns were chosen for detailed analysis: fast exponential reversals. such as the probability of the price reaching a certain target. Instead we focused only on elite patterns. traders will be able to learn how to recognize elite patterns. leveraged ETFs and stocks. leveraged ETFs and stocks. strong trends and several patterns based on equal waves. was created to automate the recognition and analysis of the most profitable patterns. and to provide detailed statistics for each pattern.1 INTRODUCTION This book has two objectives: to describe highly profitable intraday patterns for ETFs. called DISFA™. each group of financial instruments was analyzed separately. The patterns for ETFs and stocks may look similar. to discover elite patterns.

.disfa.statistics for stocks with comments. Pattern identification factors provide rules and parameters in order to recognize the pattern during a trading session. .statistics for leveraged ETFs with comments. . Recommendations for trading this pattern include analysis of meta information such as market sentiment and stock strength/weakness. Each chapter of the book uses detailed illustrations to help present the concept of elite patterns.com.recommendations for trading the pattern. The final chapter describes the main concept of the Alimp™ software system. Every chapter contains the following information about the pattern: .pattern identification factors for leveraged ETFs. The chapters of this book can be read in any order. which uses combinatorial intelligence to automatically create and test millions of trading systems based on elite patterns. the DISFA engine and the Alimp software system visit www. .statistics for ETFs with comments.pattern identification factors for stocks. . ETFs and leveraged ETFs helps estimate the quality of the pattern for every group of instruments. An abundance of visual information is provided to make understanding easier. This is why each pattern description includes separate statistics for ETFs. Statistics for stocks.pattern description. . .conclusion.pattern identification factors for ETFs. . For more information about elite patterns.2 INTRODUCTION but their parameters may differ greatly. leveraged ETFs and stocks. Each chapter of this book represents one pattern and may be read independently. .

.6% after W-long reversal pattern confirmed by volume spike.1 AGO: Assured Guaranty LTD. Pattern description The price declines quickly by two equal waves.1). the second wave forms an exponential curve (Fig. 5. Fig. 5. Fast reversal after two exponential waves down Pattern code: W-long™ This elite pattern is a combination of two structures: two equal waves down and an exponential drop of price.55 Chapter 5. A reversal after two waves and an exponential drop has the best statistics among all patterns. Stock experienced fast rally of 9.

2 HIG: Hartford Financial Services. the following rules were used: entry price – low of next one-minute bar after W-long pattern was detected. using a one-minute intraday price and volume data for the 2003-2008 period. 5.3).2% from low after signal. Entry price – low of next bar after signal.56 Statistics for stocks Chapter 5. 2% and 3%.6% and 38.4% rally in 40 minutes. . ideal exit price – intraday high after reversal started (Fig. To determine the potential profit of the pattern (intraday price increase after signal).2). ideal exit price – high of price bounce. Stock reversed and made 4. To estimate the statistical quality of the W-long pattern for stocks. NYSE and AMEX. 5. probability of price increase greater than 1%. four parameters were calculated: average price increase after signal. W-long Statistics for the W-long pattern was calculated on stocks of three exchanges: NASDAQ. Fibonacci lines are calculated by using the intraday high before price decline and the low after signal (Fig.1). Fig. 5. with exponential shape of second wave. probability of reaching 2% stop (Table 5. probability of reaching Fibonacci lines 23. Price formed two waves.

6% and 38.06 Comments This is a really elite pattern.7%.74 0. A price reversal after two exponential waves has an excellent average price increase of 4. Inc. Profit potential was 4.60 0. 5.6% low after signal Fib 38.1 Statistics of W-long pattern on stocks Description Average potential profit 1% 2% 3% Probability of reaching Fibonacci lines from Fib 23.49% Probability 0.Fast reversal after two exponential waves down 57 Value TABLE 5.87 0.79 0. . After reversal stock reached third Fibonacci line 50% in 30 min. Price formed two exponential waves.2%.49% and a high probability of growing by 1%-3% and reaching Fibonacci lines of 23.64 0. Fig.3 FUQI: Fuqi International.2% Probability of reaching 2% stop Probability of potential profit greater than 4.

on a one-minute chart choose stocks that have a price curve with a clear exponential shape at the end of the second wave. check that stock formed equal or almost equal waves and wait for the moment when the price drop accelerates during the last 5 minutes. . second.average 20 minutes 240 minutes 3. Exponential shape of second wave – visual or computerized identification.minimal . third. price decline of the two equal waves. fast relative decline of price on the big bars during final phase. Length of two waves: . Trading two exponential waves for stocks A price reversal after two equal waves with an exponential drop of the second wave is a 'high reward .minimal .0% The price decline of the first and second wave should be practically equal (should differ by no more than 10 percent). Minimal time period to recognize exponential shape: 5 minutes Two equal waves with an exponential price decline may be detected using special software that recognizes exponential waves or by using the following procedure: first.high risk' type of pattern. find stocks that formed two easily recognizable waves down. Similar to all exponential patterns (Chapters 1 and 2). but only with proper risk management and position filling control.5% 10. Three factors are most important: length of the two waves. It is very important to detect the exponential shape of the second wave.58 Pattern identification factors for stocks Chapter 5. which should last at least 5 minutes. W-long The W-long pattern can be presented as a combination of two patterns: two equal waves down and an exponential decrease of price at the end of the second wave. trading of this pattern can be very rewarding.maximal Decline of price for two waves: .

then a good strategy is to fill the position by small portions and wait for high profit. 5. Fig. double and round bottoms and others. ETF experienced fast rally after exponential reversal pattern was confirmed by volume spike.Fast reversal after two exponential waves down 59 The risk may be reduced by waiting for price reversal confirmation. creating a big spike in volume: the green volume bar is much greater than the previous red bar. hence trading strategies from the corresponding chapters (Chapters 1 and 3) can be applied.4 OIH: Oil Service HOLDRs (ETF). If such a pattern is detected.and DEXP-patterns. It is important to remember that while the exponential waves pattern has the highest average potential profit. Two exponential waves may be confirmed by geometry: inverse head and shoulders. the confirmation of geometrical patterns greatly increases the probability of realizing a high profit. The one-minute OIH chart (Fig 5. it is also pretty rare. based on money flow. . together with money flow.4) shows that in a couple of minutes after detection of the W-long pattern active buyers stepped in. The W-long pattern is a combination of the L2L.

2% from low after signal. probability of reaching Fibonacci lines 23. The rules for potential profit calculation for ETFs and stocks are the same (Fig.15% 2.94% 1.97% 1.55% 1. W-long ETFs also experience a fast reversal after the W-long pattern.8%. Statistics for the W-long pattern was calculated using a one-minute intraday price and volume data for the 2003-June 2009 period. 5.26% To estimate the statistical quality of the W-long pattern for ETFs. TABLE 5. . four parameters were calculated: average price increase after signal (potential profit).60 Statistics for ETFs Chapter 5.13% 2. Series 1 Technology Select Sector SPDR iShares Russell 2000 Index iShares Russell 2000 Growth Index Oil Service HOLDRs iShares Russell 2000 Value Index 2.12% 2.2).6% and 38.69% 1.2 ETFs list ETF Full name Average potential profit RTH SPY IVV QQQQ XLF XLE EWY MDY DIA XLK IWM IWO OIH IWN Retail HOLDRs SPDR S&P 500 iShares S&P 500 Index PowerShares QQQ Trust. probability of price increase greater than 0.5% and 0.11% 2. Statistical results for the 14 most liquid ETFs are shown below (Table 5.66% 1.25% 2. probability of reaching 1% stop (Table 5.09% 1.50% 1.2). although the average rally is lower compared to stocks due to the nature of ETFs (the price of an ETF is formed as a weighted average of the underlying stocks' price).3). Series 1 Financial Select Sector SPDR Energy Select Sector SPDR iShares MSCI South Korea Index MidCap SPDRs Diamonds Trust.18% 2.

70 0.5% 0.maximal Price decline of two equal waves: . Pattern identification factors for ETFs Similar to stocks. Four factors are most important: length of the two waves.90% Probability 0.5% . fast relative decline of price on the big bars during final phase (which should last at least 5 minutes) and time of day when pattern is formed. see statistics later in this chapter. Detailed statistics for each ETF can be found in the appendix (Table A.5).minimal 40 minutes 270 minutes 4.minimal .25% after an exponential drop on the second wave vs. price decline of the two equal waves.2% Probability of potential profit greater than Probability of reaching 1% stop 1. this pattern is a combination of two equal waves with a fast exponential decrease at the end of the second wave (Fig.3 Statistics of W-long pattern on ETFs Description Average potential profit 0. But ETFs have their advantage: greater liquidity and a much lower risk of a big unexpected price move on rumors or news.84 0.9%.16 Comments The average price increase (potential profit) for ETFs after the W-long pattern is 1.6% low after signal Fib 38.5% 2. The recent introduction of leveraged ETFs leads to much higher average price increase. which is lower than the 4. 5. Top performer: RTH with an average rally of 2.47 0.Fast reversal after two exponential waves down 61 Value TABLE 5. 1.9).2).76 0.9% for the entire group (Table 5.49% average for stocks. Length of two waves: .average .8% Probability of reaching Fibonacci lines from Fib 23. Exponential shape of second wave – visual or computerized identification.

the average day volume of SKF . A rapid increase in average volume shows that these instruments became very popular for intraday trading.Direxion Daily Financial Bull 3X Shares is 48 million. there is not enough time for the ETF price to bounce with good profit.62 Chapter 5.4). Statistics on leveraged ETFs for the W-long pattern was calculated using a one-minute intraday price and volume data from the moment of their introduction till June 2009. FAS . 2009. while 3x leveraged ETFs were introduced only at the end of 2008. SSO . Statistical results for the 23 most liquid 2x and 3x leveraged ETFs are shown below (Table 5.5 XLE: Energy Select Sector SPDR. For example. Statistics for leveraged ETFs Leveraged ETFs provide 200% or 300% of an underlying index or sector's move intraday. W-long The price decline of the first and second wave should differ by no more than 10 percent. XLE increased by 5. For signals in the last 1. 5.ProShares Ultra S&P 500 is 53 million.5 hours before the close.73%. After forming exponential pattern. Fig. . as of June 1. It is important to note that 2x leveraged ETFs were introduced in 2006-2007.ProShares UltraShort Financials is 48 million.

52% 2.13% 2. which were used for the research.4 includes the most liquid leveraged ETFs.45% 2.83% 2.40% 2.69% 2.83% 2.66% 2. TABLE 5.17% 3. four parameters were calculated: average price increase after signal (potential profit). probability of reaching Fibonacci lines 23.62% 3.Fast reversal after two exponential waves down 63 Table 5.52% 3. .4 Leveraged ETFs list 2x ETF Full name Average potential profit DDM SRS SKF SSO MVV QLD EEV DUG DXD SDS DIG QID UWM TWM MZZ FAS FAZ ERX TNA ERY BGU BGZ TZA ProShares Ultra Dow30 ProShares UltraShort Real Estate ProShares UltraShort Financials ProShares Ultra S&P500 Ultra MidCap400 ProShares ProShares Ultra QQQ UltraShort MSCI Emerging Markets ProShares ProShares UltraShort Oil & Gas ProShares UltraShort Dow30 ProShares UltraShort S&P500 ProShares Ultra Oil & Gas ProShares UltraShort QQQ Ultra Russell2000 ProShares ProShares UltraShort Russell2000 UltraShort MidCap400 ProShares Direxion Daily Financial Bull 3X Shares Direxion Daily Financial Bear 3X Shares Direxion Daily Energy Bull 3X Shares Direxion Daily Small Cap Bull 3X Shares Direxion Daily Energy Bear 3X Shares Direxion Daily Large Cap Bull 3X Shares Direxion Daily Large Cap Bear 3X Shares Direxion Daily Small Cap Bear 3X Shares 4.29% 2. 5.75% 2.20% 2.52% 3.51% 2.2% from low after signal.59% 2.51% 2.71% 2. long and short.2). probability of price increase greater than 1% and 1.6% and 38. The rules for potential profit calculation for leveraged ETFs and stocks are the same (Fig.5).96% 2. probability of reaching 1.34% 3x ETF Full name Average potential profit To estimate the statistical quality of the W-long pattern for leveraged ETFs.5% stop (Table 5.5%.06% 3.98% 3.

5% stop Probability of potential profit greater than 2.73 0. which is much higher than the 1.52% vs. Top performers: FAZ and FAS.64 Description Chapter 5. 5. W-long TABLE 5.6% low after signal Fib 38. 5.9% average for the underlying ETFs. This can be explained by the very high volatility of instruments related to finance. FAZ reversed and increased by 13%.14 Comments The average potential profit for leveraged ETFs is 2.0% 1.5 Statistics of W-long pattern on leveraged ETFs Value Average potential profit 1.5% Probability of reaching Fibonacci lines from Fib 23.06% and 3.4).73 0. DDM and SRS showed the best performance with average potential profits of 4.92% Probability 0. 3x leveraged ETFs. Detailed statistics for each leveraged ETF can be found in the appendix (Table A. Fig. came up with an average rally of 3.62 0. 2. .6).6 FAZ: Direxion Daily Financial Bear 3X Shares.92%.98% (Table 5. Among the 2x leveraged ETFs.51 0. After forming exponential pattern at the end of the second wave down.10).2% Probability of reaching 1.92% for the entire group (Fig.

price decline of the two equal waves.5% The price decline of the first and second wave should differ by no more than 10 percent. DIG reversed and increased by 9.minimal 60 minutes 270 minutes 7. For signals in the last 1.average . 5. Length of two waves: .51%. After forming exponential pattern at the end of the second wave down. Exponential shape of second wave – visual or computerized identification.7 DIG: ProShares Ultra Oil & Gas.maximal Price decline of two equal waves: .5 hours before the close. there is not enough time for the leveraged ETF price to bounce with good profit. Four factors are most important: length of the two waves. search for a combination of two patterns: two equal waves plus a fast exponential decrease at the end of the second wave (Fig.minimal . Fig. . 5.3% 3.7).Fast reversal after two exponential waves down 65 Pattern identification factors for leveraged ETFs As with the W-long pattern identification for the underlying ETFs. fast relative decline of price on the big bars during final phase and time of day when pattern is formed.

for example. .9% for ETFs and 2. The price changes very quickly during exponential decline. This pattern has high profit potential and a good probability of reaching the profit target. therefore. with inversed head and shoulders (Fig. After fulfilling W-long pattern. 5.1-B. see tables B. 5. a computerized algorithm for pattern detection is recommended. W-long Fig. leveraged ETFs and stocks. Conclusion A fast price reversal after two equal waves with an exponential second wave is an excellent pattern for intraday trading on ETFs.8). The average potential profit (price increase) after pattern detection is 4. To compare the statistical quality of the W-long pattern with others. For better results. 1. Profitable trading of this pattern requires proper risk management and position sizing.92% for leveraged ETFs.49% for stocks.8 SKF: ProShares UltraShort Financials. the pattern may be used with geometric confirmation.66 Chapter 5. SKF formed inverse head and shoulders and ran into 6% rally.3 in the appendix.

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