Charting Patterns on Price History

Anand Saswat, Wei-Ngan Chin, Siau-Cheng Khoo

To appear at International Conference on Functional Programming (ICFP01), Firenze, Italy, 3-5 September 2001


Abstract

It is an established notion among financial analysts that price moves in patterns and these patterns can be used to forecast future price. As the definition of these patterns are often subjective, every analyst has a need to define and search meaningful patterns from historical time series quickly and efficiently. However, such discovery process can be extremely laborious and technically challenging in the absence of a high level pattern definition language. In this paper, we propose a chart-pattern language (CPL for short) to facilitate pattern discovery process. Our language enables financial analysts to (1) define patterns with subjective criteria, through introduction of fuzzy constraints; (2) incrementally compose complex patterns from simpler patterns; and (3) automate trading decision by specifying trading strategy using patterns. We demonstrate through an array of examples how real life patterns can be expressed in CPL. Consequently, CPL provides a high-level platform upon which analysts can define and search patterns easily and without any programming expertise. CPL is a domain-specific language embedded within Haskell. We show how various features of a functional language, such as pattern matching, higher-order functions, facilitate pattern definitions. Furthermore, Haskell's type system frees the programmers from annotating the programs with types.


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