There are many classical well-know chart patterns that found a long time ago and now considered as "typical" ones. Also there are many other patterns that can signal a particular, bullish or bear trend, but not described yet. Known or unknown patterns that are persistent can be repeatable in the future; therefore, they can be used to predict the future price movement.
To ease the job to memorize all patterns and analyze a huge amount of charts, many chartists use different software tools - pattern recognition systems. These tools normally perform statistical classification of patterns assuming that the patterns are generated by a probabilistic system (the stock market is a semi-probabilistic system).
Technical Analyzer TA-1 (TA) by Addaptron Software has a feature to predict a future trend of stock, ETF, or index prices using pattern similarity. The prediction period can be chosen within a range 1..60 trading days; the period of historical data that used for matching recommended in 4..16 times longer than prediction period. TA searches for the best matches by scanning all historical data from the internal database.
TA ranks all possible matches on the basis of maximum correlation and minimum deviation within given historical period. TA performs pattern matching using open, high, low, and close prices and volume data. When scanning is completed, depending on degree of similarity, it ranks all possible matches within given historical period and then combine them. TA composes forecast using several best matched patterns (top ranked). Since the statistical regularities of the patterns help to create more stable picture, TA allows adding up many top-rated patterns. The composite result is built as a weighted average with weights proportionally pattern ranks.
To try free fully-functional version of TA, visit Addaptron Software download page to download and install it.