How many times have you wished you could just let your software scan a price series and let you know when it has found a particular pattern that you like? You have in your mind a special pattern of moves that you believe could precede a strong change in the market, but you'd like the software to just monitor the incoming bars looking for your pattern. You can do just that with the Fuzzy Pattern Recognizer Add-On for the NeuroShell Trader series! And you can do it using fuzzy logic!

Fuzzy logic was invented by Lofti Zadeh and written about extensively in books by Bart Kosko. Fuzzy logic has been used successfully in machines and software around the world, even in "smart" household appliances. Now you can add this smart control to your trading, and it is easy to use because we've done the hard work for you!

The Fuzzy Pattern Recognizer is a fuzzy logic engine, which lets you describe your pattern in "fuzzy" rules (approximate rules of thumb). It is really a series of indicators that show you, on a scale of 0 to 1, how close the current price series matches your pattern. Turn on an alert in the DayTrader Professional and the Fuzzy Pattern Recognizer will scan your incoming bars looking for all of your favorite patterns. The alert will sound when the match is above .6, .8, or any value you select.

Fuzzy rules are rules that are general in nature, not exactly specified. We describe price or indicator curves with the following fuzzy (verb) rules:

1. rises sharply

2. rises

3. remains steady

4. drops

5. drops sharply

Example Rules

Here are some example rules written in English which can be specified in the Fuzzy Pattern Recognizer Add-On:

1. The close rises sharply, then stays steady, then rises sharply again.

2. The RSI rises, then drops, then rises, then rises sharply.

3. The high remains steady, then drops, then rises, then remains steady, then drops, then drops sharply, then remains steady.

4. The close drops sharply.

Additional Highlights of the Fuzzy Pattern Recognizer

1. If you don't have any favorite patterns, you can let the genetic algorithm (GA) find them for you if you own the NeuroShell Trader Professional, or DayTrader Professional.

2. You can specify that you want to look for two or more patterns, and then use the "Fuzzy OR" indicator to specify that any of your patterns is acceptable.

3. You can specify that you want to look for two or more patterns, and then use the "Fuzzy AND" indicator to specify that all of your patterns must be present.

4. "Fuzzy OR" and "Fuzzy AND" indicators can be combined for complex searches.

5. As you can see from the example rules, patterns can be found not only in a price stream, but in most indicators such as stochastics, moving averages, etc., as well.

6. You specify the number of bars in which a fuzzy verb like "rises" applies. In other words, you determine that "rises" means over a duration of, say 10 minutes or ten days.

7. You can also set the maximum expected variation, i.e., what you consider the maximum "sharp rise" to be. In that way, you can specify fuzzy rules, and then later apply those same rules to less or more volatile issues without recoding the indicator. All you have to do is reset the maximum expected variation.

8. Although one use for Fuzzy Pattern Recognizer indicators is in Trading Strategy rules (conditions), you can also feed them into neural nets or other indicators.

Three Groups of Indicators

There are three groups of indicators in the Fuzzy Pattern Recognizer: Fuzzy Indicators, Fuzzy Indicators with Genetic Algorithm Optimization, and Fuzzy Rules.

Fuzzy Indicators

There are 8 "fuzzy (verb) rule" indicators in the Add-On, Fuzzy1, Fuzzy2, ... , Fuzzy8. Fuzzy1 handles "1 segment" rules such as "close rises" or "open drops sharply". Fuzzy2 handles "2 segment" rules such as "close rises, then drops sharply". Fuzzy3 is for "3 segment" rules such as "open rises, then drops, then remains steady", etc. The internal fuzzy logic engine parameters in this group of indicators are hidden from the user and fixed at some reasonable default values.

Fuzzy Indicators with GA Optimization

There are 8 "fuzzy (verb) rule" indicators with genetic algorithm (GA) optimization in the Add-On, FuzzyGA1, FuzzyGA2, ... , FuzzyGA8. FuzzyGA1 handles "1 segment" rules such as "close rises" or "open drops sharply". FuzzyGA2 handles "2 segment" rules such as "close rises, then drops sharply". FuzzyGA3 is for "3 segment" rules such as "open rises, then drops, then remains steady", etc. The internal fuzzy logic engine parameters are exposed to the user and can be optimized with the help of the GA.

Fuzzy Rules

There are 3 FuzzyOR rules and 3 FuzzyAND rules: FuzzyOR2, FuzzyOR3, FuzzyOR4, FuzzyAND2, FuzzyAND3, FuzzyAND4. As previously mentioned, these combine rules. For example, suppose you are looking for either a pattern that rises sharply then drops sharply, or a pattern that rises sharply, then remains steady, then drops sharply. Then you would use a FuzzyOR2 indicator which takes as arguments a Fuzzy2 indicator and a Fuzzy3 indicator, each specifying their respective rules.

FuzzyOR and FuzzyAND indicators may take other FuzzyOR and FuzzyAND indicators as arguments, as long as the lowest level indicators are "rule" indicators such as Fuzzy2.

Where to Find Fuzzy Indicators and Fuzzy Rules

All Fuzzy Indicators and Fuzzy Rules are found in the Fuzzy Pattern Recognition category of indicators in the Indicator Wizard.

Requirements

The Fuzzy Indicators do not require any optimization if you want to use them to hunt for specific patterns in incoming data. In general, you can also use them without optimization in a trading strategy to buy or sell when specific patterns occur. However, whenever you do not have specific patterns in mind, the optimizer in the NeuroShell Trader Professional and DayTrader Professional is useful for finding the best patterns to use.