Sliding-window correlation for cup-and-handle construction

Store a shape, then score every window

A chart shape can be stored as another equal-interval series shorter than the series under review. That stored series is then scored on every same-length window. The figure is not accepted or rejected by a simple up-day and down-day rule.

How the sliding-window-scan is scored

A sliding-window-scan compares a fixed-length template with every same-length stretch of a longer, evenly spaced price series and plots the fit against time. The scan uses the ordinary linear-association coefficient from least-squares curve fitting. A value of 1 marks an identical orientation. A value of -1 marks an inverted-match, a window whose shape is the template turned upside down. Values near 0 mark no resemblance.

For two length-N series the coefficient is their covariance divided by the product of their standard deviations. A spreadsheet can compute it on a 21-point template against each successive 21-point window, aligning each value to the window center.

A scale-free-fit

Because the coefficient is normalized, only the shapes of the template and the window change the score. The numeric scale of either series does not. That scale-free-fit depends on relative shape, not on the absolute levels of the template or the market window. Scores of 0.8 or higher were treated as matches a person can recognize by eye.

A historical excerpt and a prototypical-pattern

A 21-session cup-with-handle excerpt scanned across a 264-session daily-close series produced five windows above 0.8, including a perfect 1.0 at the excerpt's own location. A smooth fourth-degree polynomial plus a four-session handle produced a similar score path. A prototypical-pattern can therefore stand in for a raw historical clip, so one library shape can be reused across many series.

Lock the template-length

Template-length is the sampling-interval count of the pattern series. It must be chosen before the scan and kept nearly constant from window to window. If it is not fixed in advance to within a few sampling intervals, the score falls quickly and several lengths of the same shape are required.