Machine Learning: Trend Lines [YinYangAlgorithms]

9 Okt 2023

Trend lines have always been a key indicator that may help predict many different types of price movements. They have been well known to create different types of formations such as: Pennants, Channels, Flags and Wedges. The type of formation they create is based on how the formation was created and the angle it was created. For instance, if there was a strong price increase and then there is a Wedge where both end points meet, this is considered a Bull Pennant. The formations Trend Lines create may be powerful tools that can help predict current Support and Resistance and also Future Momentum changes. However, not all Trend Lines will create formations, and alone they may stand as strong Support and Resistance locations on the Vertical.

The purpose of this Indicator is to apply Machine Learning logic to a Traditional Trend Line Calculation, and therefore allowing a new approach to a modern indicator of high usage. The results of such are quite interesting and goes to show the impacts a simple KNN Machine Learning model can have on Traditional Indicators.

Tutorial:



There are a few different settings within this Indicator. Many will greatly impact the results and if any are changed, lots will need ‘Fine Tuning’. So let's discuss the main toggles that have great effects and what they do before discussing the lengths. Currently in this example above we have the Indicator at its Default Settings. In this example, you can see how the Trend Lines act as key Support and Resistance locations. Due note, Support and Resistance are a relative term, as is their color. What starts off as Support or Resistance may change when the price crosses over / under them.



In the example above we have zoomed in and circled locations that exhibited markers of Support and Resistance along the Trend Lines. These Trend Lines are all created using the Default Settings. As you can see from the example above; just because it is a Green Upwards Trend Line, doesn’t mean it’s a Support Line. Support and Resistance is always shifting on Trend Lines based on the prices location relative to them.



We won’t go through all the Formations Trend Lines make, but the example above, we can see the Trend Lines formed a Downward Channel. Channels are when there are two parallel downwards Trend Lines that are at a relatively similar angle. This means that they won’t ever meet. What may happen when the price is within these channels, is it may bounce between the upper and lower bounds. These Channels may drive the price upwards or downwards, depending on if it is in an Upwards or Downwards Channel.



If you refer to the example above, you’ll notice that the Trend Lines are formed like traditional Trend Lines. They don’t stem from current Highs and Lows but rather Machine Learning Highs and Lows. More often than not, the Machine Learning approach to Trend Lines cause their start point and angle to be quite different than a Traditional Trend Line. Due to this, it may help predict Support and Resistance locations at are more uncommon and therefore can be quite useful.



In the example above we have turned off the toggle in Settings ‘Use Exponential Data Average’. This Settings uses a custom Exponential Data Average of the KNN rather than simply averaging the KNN. By Default it is enabled, but as you can see when it is disabled it may create some pretty strong lasting Trend Lines. This is why we advise you ZOOM OUT AS FAR AS YOU CAN. Trend Lines are only displayed when you’ve zoomed out far enough that their Start Point is visible.

As you can see in this example above, there were 3 major Upward Trend Lines created in 2020 that have had a major impact on Support and Resistance Locations within the last year. Lets zoom in and get a closer look.



We have zoomed in for this example above, and circled some of the major Support and Resistance locations that these Upward Trend Lines may have had a major impact on.

Please note, these Machine Learning Trend Lines aren’t a ‘One Size Fits All’ kind of thing. They are completely customizable within the Settings, so that you can get a tailored experience based on what Pair and Time Frame you are trading on.

When any values are changed within the Settings, you’ll likely need to ‘Fine Tune’ the rest of the settings until your desired result is met. By default the modifiable lengths within the Settings are:

• Machine Learning Length: 50
  
• KNN Length:5
  
• Fast ML Data Length: 5
  
• Slow ML Data Length: 30
  

For example, let's toggle ‘Use Exponential Data Averages’ back on and change ‘Fast ML Data Length’ from 5 to 20 and ‘Slow ML Data Length’ from 30 to 50.

As you can in the example above, all of the lines have changed. Although there are still some strong Support Locations created by the Upwards Trend Lines.

We will conclude our Tutorial here. Hopefully you’ve learned how to use Machine Learning Trend Lines and will be able to now see some more unorthodox Support and Resistance locations on the Vertical.

Settings:

• Use Machine Learning Sources: If disabled Traditional Trend line sources (High and Low) will be used rather than Rational Quadratics.
  
• Use KNN Distance Sorting: You can disable this if you wish to not have the Machine Learning Data sorted using KNN. If disabled trend line logic will be Traditional.
  
• Use Exponential Data Average: This Settings uses a custom Exponential Data Average of the KNN rather than simply averaging the KNN.
  
• Machine Learning Length: How strong is our Machine Learning Memory? Please note, when this value is too high the data is almost 'too' much and can lead to poor results.
  
• K-Nearest Neighbour (KNN) Length: How many K-Nearest Neighbours are allowed with our Distance Clustering? Please note, too high or too low may lead to poor results.
  
• Fast ML Data Length: Fast and Slow speed needs to be adjusted properly to see results. 3/5/7 all seem to work well for Fast.
  
• Slow ML Data Length: Fast and Slow speed needs to be adjusted properly to see results. 20 - 50 all seem to work well for Slow.
  

If you have any questions, comments, ideas or concerns please don't hesitate to contact us.

HAPPY TRADING!