Pattern Recognition Introduction

My trading partner and I have been cooking up something amazing for the last year or so.  I alluded to this in a post last month titled, The Power of Side Projects.  What we have been toiling away on is a cool new algorithm for pattern recognition.  Not just a run of the mill algorithm but rather a completely new mathematical and dare I say almost philosophical way of looking at market data.

To visualize how the software works, imagine drawing a line graph of every single trading day (intraday) of the Dow on a separate sheet of paper.  Now take the humongous stack of paper and press the it up against a sunny window like a kid with tracing paper.  Even if the sun could shine through the stack of paper, you’d still have an unrecognizable blob, right?  Wrong.  Our software can intelligently processes HUGE amounts of data and reveal the true nature behind the noise — even if the nature of the data is in fact actual random noise (in which case it will generate no patterns, smart huh?).

Now imagine all the ways you can categorize, slice and dice the data!  The range of application is pretty amazing.  For the last couple months we’ve been going through data like kids in a candy store (nerds unite).  We’ve tested out lots of different situations to see what works and where the limit of application truly lies.  Our latest fascination is analyzing intraday patterns on the major indexes.  Specifically, investigating whether or not there are dominant pattern archetypes that repeat (and under what conditions).  We’ve already uncovered some mind blowing stuff, but our research and fascination with this data is just beginning.  I promise to post interesting developments as they happen.

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