As of 12/06/2022
  Indus: 33,596 -350.76 -1.0%  
  Trans: 13,898 -150.08 -1.1%  
  Utils: 979 +8.73 +0.9%  
  Nasdaq: 11,015 -225.05 -2.0%  
  S&P 500: 3,941 -57.58 -1.4%  
YTD
-7.5%  
-15.7%  
-0.2%  
-29.6%  
-17.3%  
  Targets    Overview: 12/01/2022  
  Up arrow35,500 or 32,800 by 12/15/2022
  Down arrow13,400 or 14,500 by 12/15/2022
  Up arrow1,000 or 925 by 12/15/2022
  Up arrow12,000 or 10,600 by 12/15/2022
  Up arrow4,250 or 3,850 by 12/15/2022
CPI (updated daily): Arrows on 12/5/22
As of 12/06/2022
  Indus: 33,596 -350.76 -1.0%  
  Trans: 13,898 -150.08 -1.1%  
  Utils: 979 +8.73 +0.9%  
  Nasdaq: 11,015 -225.05 -2.0%  
  S&P 500: 3,941 -57.58 -1.4%  
YTD
-7.5%  
-15.7%  
-0.2%  
-29.6%  
-17.3%  
  Targets    Overview: 12/01/2022  
  Up arrow35,500 or 32,800 by 12/15/2022
  Down arrow13,400 or 14,500 by 12/15/2022
  Up arrow1,000 or 925 by 12/15/2022
  Up arrow12,000 or 10,600 by 12/15/2022
  Up arrow4,250 or 3,850 by 12/15/2022
CPI (updated daily): Arrows on 12/5/22

Bulkowski's Chart Pattern Indicator

Revised on 3/31/2021.

My book, Swing and Day TradingSwing and Day Trading: Evolution of a Trader book., pictured on the left, discusses the chart pattern indicator starting on page 133. It discusses the NR7 pattern and the CPI equation, too.

If you click on the above link and then buy the book (or anything) while at Amazon.com, the referral will help support this site. Thanks.

-- Tom Bulkowski

$ $ $

CPI Background (how to calculate the CPI)
CPI Results
Historical CPI numbers, from 1/1999 to 12/2011 (.xls, 112k compressed)
CPI Warnings
See Also
 
From the FAQ...
Why do chart pattern indicator signals appear one day and disappear the next?
Why do daily CPI readings not match those from the spreadsheet?
I want to trade using your chart pattern indicator.
How do I calculate the chart pattern indicator?

The chart pattern indicator gives hints of market turning points. This page describes the indicator.

The free Patternz program will calculate the indicator for you. All you have to do is download data for several hundred stock files. Be sure to keep your data files short -- no longer than a year, otherwise it could slow the tabulation).

Be aware that if your data files do not agree with mine, then you may get different results. Even if the files agree, but your stocks have been adjusted for dividends and mine have not, our results may vary.

CPI location

Signal changes are announced daily on the website on the home page (upper right, above the phrase Weekly Updates (below): [date] as "Mkt outlook:" (see figure), on all other pages, you'll see it in the grid at the top of the page. See the circled area in the figure. However, I changed the 'Chart pattern indicator' phrase to 'CPI (updated daily)' so it's a little different than what's shown in the figure.

Chart Pattern Indicator: Background

I created this indicator in mid 2007 to help determine the best time to invest.

The chart pattern indicator is a tool that shows when the general market may turn using the theory that few bullish patterns appear near market tops and more appear near market bottoms. The indicator is a ratio of bullish patterns to the total of bullish and bearish patterns, expressed as a percentage. Thus, the more securities the indicator uses in its search, the better the results are likely to be.

To determine whether a security is bullish or bearish, I use the breakout method on an NR7 chart pattern. Price is searched to find the first instance in which price closes above the top or below the bottom of the NR7 after the pattern ends. The day that occurs, it represents the breakout day. Let me repeat that: An upward breakout occurs when price closes above the top of the 7 price bars in the NR7. A downward breakout occurs when price closes below the bottom of the NR7.

After finding a breakout, an upward breakout is bullish and a downward breakout is bearish. Bullish and bearish patterns are counted from pattern's end (the last day of the NR7) to the breakout, but the breakout must occur within 7 calendar days (not trading days, and not including the last price bar of the NR7) or the pattern is discarded.

For example if the NR7 ends on 2/1, a breakout must occur on or before 2/8. That's 7 days after the end of the NR7.

AFTER a breakout, every day that a bullish pattern exists (from pattern end [the last day of the NR7] to breakout) counts as 1. Each day that a bearish pattern exists also counts as 1 (in a separate tally, from pattern end [the last day of the NR7] to breakout. Again, this only applies to patterns after the breakout). The totals of the bullish patterns are then compared to the total of both bullish and bearish patterns each day to form the indicator, expressed as a percentage: CPI = 100 * BullTotal / (BullTotal + BearTotal).

For example, if an NR7 ends on Monday and breaks out upward on Wednesday, Monday will have a bullish 1 count as will Tuesday and Wednesday. If a bearish NR7 ends on Tuesday and breaks out on Wednesday, both Tuesday and Wednesday will have bearish 1 counts. The indicator would show 100% for Monday (1 bullish count/1 total counts), and 50% for both Tuesday and Wednesday (those days would each have 1 bullish count to 2 total counts (one bullish and one bearish count)).

The reason to count bullish or bearish patterns in this manner is that the smart money knows to buy or sell a stock and does so over time. If they know good earnings are coming, they will be buying the stock before the announcement. That buying and the buying patterns of other investors or traders creates the chart patterns you see. Counting the pattern from pattern end to breakout is a way to capture the movements of the smart money over time.

The downside of using this counting method is that patterns waiting for a breakout to occur will not be counted until the breakout. Thus, what is a buy signal today based on 100 patterns may change to neutral or even sell when 200 patterns finally do show breakouts.

CPI: Waiting for Breakout

The Patternz program also shows the number of patterns waiting for breakout. That tabulation is similar to that already described. If an NR7 has not broken out yet, I count from the last day of the NR7 to 7 calendar days later (again, th3 7 days does not include the end of the NR7). I combine the waiting for breakout values for the same day (like all the NR7s waiting for breakout on February 1) and present the total to the user.

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Chart Pattern Indicator: Results

Raw chart of the indicator

The above chart shows the S&P 500 index from April 4, 2007 to February 15, 2008. Below the OHLC chart is the chart pattern indicator (squiggly blue line that probably looks black). Bullish and bearish thresholds were tested and found that 65 and 35 worked best. In this chart, the buy threshold appears as a green line and the sell threshold as a red line.

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For testing, I used 548 stocks from my database (click here for the symbols used in the indicator) on the daily scale. I tested the indicator using different configurations (chart patterns and candlesticks) and over many time periods. I found that the NR7 pattern with the 65/35 thresholds worked best and gave the most timely signals. (The Nr4 pattern did not work as well as the NR7, by the way).

Filled in results of the chart pattern indicator

This is the same chart as the prior one but the buy and sell signal bars are overlayed on the chart. This shows how well the indicator is at predicting market turns, at least for the period shown. For the most recent chart, visit the CPIUpdate.html page.

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Chart Pattern Indicator: Warnings

The following is a series of warnings on what you may discover about the indicator and why.

If you use this indicator for periods shorter than weekly, you will likely be in for a nasty surprise. Due to the way I have it configured, signals up to a week old can change or disappear. Thus, today's buy signal may not be valid for another week or it may change to a sell signal in a few days when more NR7s break out. Thus, this indicator is best used as a weekly signal (that is, signals older than a week are reliable) of market trend.

Having written that, I have found that the indicator is usually stable after 3 days. In other words, if a signal occurs, it's usually reliable after 3 trading days. As I write this on March 2021, the markets have been quite volatile over the past year, so I've seen the indicator signals disappear on occasion after 3 days. But as a general rule, it's reliable after 3 days. It all depends on how big a swing the market takes.

For the NR7 indicator, I use the breakout method. In the breakout method, I wait for a close either above the top or below the bottom of the NR7 to signal a bullish or bearish pattern. If an NR7 completes today, it will not be counted as bullish or bearish until sometime in the future (when the breakout actually occurs). As each trading day is tallied, the counts will change as more NR7s stage breakouts. In my analysis, I have seen the delay vary from 6 days to months later. It all depends on how long it takes a stock to move up or down enough to create a breakout. To fix this delay problem, I configured the indicator to only count breakouts that occur within 7 calendar days after the end of the NR7. If price has not broken out by then, then it is discarded.

As securities are added to the list or removed from the list scanned, the indicator may change because the counts may change. Thus, a chart from today compared to one a year ago may appear slightly different because stocks were added to or removed from the database. This assumes the program is configured in the same manner, of course.

Much of the following applies to Patternz and the results from that program.

If you do not use enough securities, you will not get an accurate picture of the CPI. How many is enough? I think at least 125 securities will give good results but it depends on how many price patterns are found. The more patterns found, the better the result will be. I use almost 600 securities now (as of October 2016).

If you change data, then you are going to see a different result. The Patternz program makes it easy to fall into the trap of expecting the same results regardless of what data you throw at it. You see the same stock or index plotted and yet you get different results. Why?

Think of it this way. Imagine that you plot the RSI or MACD indicator against a stock. Now, pick another stock and plot the same RSI or MACD indicator. Would you expect to see exactly the same result? No. Why then do you expect to see the same result when you change the data presented to the chart pattern indicator? The chart pattern indicator counts chart patterns. If you change the data, the count totals will be different, sometimes dramatically so.

-- Thomas Bulkowski

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See Also

 

Support this site! Clicking any of the books (below) takes you to Amazon.com If you buy ANYTHING while there, they pay for the referral.
Legal notices: "As an Amazon Associate I earn from qualifying purchases." Paid links).

My novels:  Bedroom to Boardroom book Remember Me book Bumper's Story book Head's Law book
My stock market books:  Chart Patterns: After the Buy Getting Started in Chart Patterns 2nd edition book Trading Basics book Fundamental Analysis and Position Trading book Swing and Day Trading book Encyclopedia of chart patterns book Encyclopedia of Chart Patterns 3rd Edition book Trading classic chart patterns book

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