Hidden three-channel regression signals for stock and call option entries

Three parameters define a channel

A channel is defined by three parameters: lookback length in days, slope of the best-fit regression line, and a width percent that must enclose every close inside that window. The historical workflow treated those windows as the Pattern recognition object: ordered closes over a chosen lookback, not a freehand drawing.

One up, one down, and one sideways window

Scanning every integer lookback from a start day to an end day produces one up channel, one down channel, and one sideways channel. The three survivors are selected by highest slope, lowest slope, and slope nearest zero.

Two illustrated configurations

On one illustrated date, the selected Hornbeck channels were a 40-day sideways window, a 63-day up window, and a 20-day down window. On the same date, General Electric showed a different configuration: a 54-day down channel, a 38-day sideways channel, and a 29-day up channel.

Nine raw values become six normalized inputs

Each of the three windows still carries length, slope, and width, so the scan begins with nine raw channel parameters. Those nine values are reduced to six normalized inputs by dividing the best up and best down width, slope, and length values by the corresponding sideways-channel values.

The same pattern can fire a stock or a call

The same recognition process can emit a buy or sell signal for either the underlying security or a call on that security as soon as the hidden pattern is identified. In a two-year stock test of 97 names, 35 issues had no losing trades and the average holding period was 33 days.

The option overlay used the nearest expiration with at least 20 days remaining, a call delta between 0.4 and 0.8, and the strike closest to 5 percent in-the-money that still met the delta band.