CPRM Patterns | Nirvana Systems Inc.

CPRM Patterns

Recognize All 15 Key Patterns!
An Explanation of Each & Why they Work.  

Support (or Resistance) is a price that buyers and sellers have “agreed” on as proper value for a stock.  As price approaches a Support level, buyers increase. Sometimes, price will “drop” through a Support level. A steep decline occurs as more sellers dump their holdings.

Trend Lines are essentially sloped Support or Resistance zones. Trend Line Breaks offer powerful confirmation of a move, especially if the line is well-formed and obvious to the market.

Saucer Patterns show us a smooth transition in price from down to up.  Market participants see the smooth change in trend and begin buying in anticipation of a follow-through.

Fibonacci Retracements demonstrate an interesting aspect of human psychology. As markets retrace 38%, 50% or 62% of a prior move, buying or selling will come in as the participants anticipate a reversal.

Price Gaps indicate sudden changes in supply or demand. If there is good news, for example, a lot of buyers (or sellers, if the news is bad) will enter orders during the overnight session. When that happens, a price gap forms.   Price Gaps often mark the half-way point of a move.

Volume Climax As price reaches a low point, volume can pick up. This occurs because more sellers are “giving up” and selling. As price starts to reverse, there are few sellers, so it takes very little pressure to rally the stock.

Consolidations are very powerful and predictive patterns. When a tight range forms, AFTER a significant move up or down, we look for a break out of the range as a highly confirmed sign that a continuation move will occur.

Candle Patterns are identified with strength values assigned based on performance. It is uncanny how often bullish or bearish Candle Patterns lead to a reinforced move in the market.

Double Tops & bottoms identify bounces off recent highs and lows, providing excellent trading opportunities. This is a great short term trading pattern, taking advantage of clearly identified

Triple Tops & Bottoms Typically, when a Support or Resistance level is touched multiple times, the market will react to it. That’s when YOU want to consider taking action—ahead of the crowd.

Channels are narrow ranges of price motion. When a break of a channel occurs, price often moves quickly and decisively away from the formation, as shown in the example to the right

Cup and Handle William O’Neill (founder of Investor’s Business Daily) made this pattern famous with his CANSLIM approach. He advised watching for a “Cup & Handle”, a pattern based on a Saucer (Cup) followed by a Consolidation (Handle).

Scallops are small Saucers that form in the middle of advancing/declining price. This pattern is  elated to the Cup and Handle pattern, except the pattern signal occurs on the right-hand formation of the Saucer

The Head & Shoulders was described in the fi rst books ever written about Technical Analysis. A Head & Shoulders is formed by two lows that form a neck line on either side of a highest-high move. When the line is broken, that is usually a great place to go Short.

A Trading Range is a Consolidation, formed by a wider range. When a Range forms, price does not remain long at the trend line forming either boundary. Most often, price will bounce off the boundary (as shown in the example) forming a Range Bounce Signal

Often, multiple patterns will fire in rapid succession, such as the Reversal Candle and Trend Line Break that occurred in March. When this occurs, the highest accuracy is achieved. 

Specialized Patterns in each Category

Example: Consolidations

In CPRM we provided an interface that allowed users to activate or de-activate any of the 7 classes of patterns, such as “all Consolidations” or “all Trend Lines” in different time frames. For CPRM, we have gone one step further. The interface lists all the individual types, so you can activate just the ones that you really want to see in your charts. 

This is important because some patterns are more accurate than others depending on the setup you are looking for. In CPRM, we identify 20 different Consolidations (see examples right). Consolidations indicate a relative equilibrium between buyers and sellers and can be exceptionally predictive. 

Some Consolidation Patterns are over 90% Accurate!

When Thomas Bulkowski wrote Th e Encyclopedia of Chart Patterns, he rigorously tested each pattern type to determine its inherent predictive nature. In his testing over a 500 stock database spanning five years, he discovered that Falling Wedges were 88% accurate and Rectangle Bottoms were 93% accurate.

These are powerful statistics! But depending on the kinds of stocks or futures contracts the trader or investor is looking at, different patterns will be more effective. Therefore, selecting the individual patterns displayed in your charts can be of great benefit.

Sharpened Focus

Selecting individual patterns also helps the trader or investor focus on the best situations, rather than dealing with too much information. Being able to selectively turn on the best patterns helps you stay focused on the best opportunities.

Micro Patterns
Profiting from Quick Moves

Chart Patterns reflect market psychology. The interesting thing is, they also cause market events to occur. Take a look at Pattern Example #1 to the right. After a bottom formed on March 21, price rose to form a Rising Wedge over the next 9 days.

The pattern tells us that buyers and sellers were in approximate equilibrium while BTU was consolidating at $52. But when the upper resistance was decisively broken at $53, the pattern contributed to the rally itself, due to the bullish psychology it created.

Potential buyers see that this stock has broken a resistance level and want to buy. Potential sellers suddenly realize their stock could go a lot higher, so they hold. The result? More buyers than sellers, and the rest is history.

Micro Patterns indicate a short term imbalance between buyers and sellers. Armed with CPRM, you see these patterns much faster than most other market participants, enabling you to act on them and profit by getting on board ahead of the crowd. 

Forming Patterns
A Peek into the Future...

Get the Earliest Possible Signal

The forming pattern feature of CPRM3 can help you enter trades early by setting stops above or below a forming line for trade entry.

Forming patterns appear as grey lines, as shown in the first image to the left. The visible right edge of the chart shows the forming patterns that would have been visible on the right edge. As soon as the pattern forms a true break, the line turns green and the tag is added below (or above) the same bar.

Forming patterns can help a great deal in your prospecting. For example, you might notice that a Trend Line has formed, but that price has not broken it yet. One way to take advantage of this is to establish a Buy, Stop Limit order at the point the line might be violated the next day, thereby getting an early entry ahead of the actual break.

Forming patterns give you more information about the setups that are occurring in the market. This “heads up” provides better clues about what the market is likely to do— especially in the case of Consolidations and Trend Lines.

CPRM is the ONLY Pattern Recognition tool with the forming pattern feature.