|  DEC 1986

Investigating chart patterns using Markov analysis by Curtis McKallip, Jr.

Investigating chart patterns using Markov analysis by Curtis McKallip, Jr. Most traders, at one time or another, have utilized elementary price patterns such as trendlines, triangles, gaps, and flags. The identifying characteristics and measuring properties of these patterns are well known. Patterns also have predictive components and are usually divided into two classes: continuation patterns and reversal patterns, depending on their most frequent chart positions. This article tabulates a large number of transitions from one pattern to another and identifies the ones which are statistically significant. A statistical method known as Markov analysis is easily adapted to study pattern transitions on price charts. This method is used by scientists to study many natural processes in which previous events influence, but do not rigidly control, subsequent events.

by Curtis McKallip, Jr.