I want to talk about the Auto-Swing Pattern Finder tool (the icon to the far-right on the toolbar) and describe what it is and what it is not.
What it Is…
The auto-finder highlights the last bullish and last bearish formations it sees on the current chart you have it running on.
For example, this AUDUSD (Daily) chart has the auto-finder running.
(Note: the some are in gray, since they don’t perfectly fit an ideal formation. The “looseness” of finding formations is customizable.)
The Recommended Way
However, I think of all finders as a form of “training wheels”, which is why the main goal of The Swing Toolkit centers around the manual Swing Pattern Finder tool (the “H” icon on the toolbar). This tool allows you to manually analyze potential formations by simply drawing one line.
For example, on the same chart as above (with current price action enlarged), I drew this pattern by simply drawing the line from point C to point X (highlighted by the blue arrow) and the tool did the rest.
Why didn’t the auto-finder draw this formation?
The limitation of all finders is the definition of what you tell it a “swing” is. On all these example charts, the ZigZag (the thin, blue lines) is highlighting what it sees as “swings” based on the settings provided.
Based on the current settings, it considers this whole move a single swing (highlighted by the arrow). The ABC portion of the formation is not identified using these settings (which I highlighted with the labels).
If I adjust the ZigZag settings from a time span of “5” down to a “3”, it now sees these swings.
When I turn the auto-pattern finder back on, as expected, it now sees the formations I manually drew above. (As well as an older, bearish pattern.)
(Note: The formations colors found by the auto-finder and the manually drawn formations are intentionally different. This helps to differentiate them. These colors are customizable.)
Final Thoughts
So, why not always have the ZigZag set to “3” (or some low value) to expose as many swings as possible?
While this may expose the smaller formations, it will have a much more difficult time finding the larger formations. It’s important to adjust the ZigZag for the symbol and time frame you are focusing on. However, understand that it’s a chicken-and-the-egg situation and a more balanced setting is recommended.
While the auto-finder can be useful, it shouldn’t be the only way you find formations .
It’s important to understand that the market is not always to-the-tick perfect as well. When you manually use the Swing Pattern Drawing tool, you can quickly adjust which swings you are analyzing and where you want X to be.
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