Many unsupervised learning methods for recognising patterns in data streams are based on fixed length data sequences, which makes them unsuitable for applications where the data sequences are of variable length such as in speech recognition, behaviour recognition and text classification. In order to use these methods on variable length data sequences, a pre-processing step is required to manually segment the data and select the appropriate features, which is often not practical in real-world applications. In this paper we suggest an unsupervised learning method that handles variable length data sequences by identifying structure in the data stream using text compression and the edit distance between ‘words’. We demonstrate that using this method we can automatically cluster unlabelled data in a data stream and perform segmentation. We evaluate the effectiveness of our proposed method using both fixed length and variable length benchmark datasets, comparing it to the Self-Organising Map in the first case. The results show a promising improvement over baseline recognition systems.