Many of you have heard that price action has a certain fractal nature to it. Here’s a pretty straightforward example which I spotted today.
Below is 2 hours worth of SPN candles from today. Look at the overall picture: a big move up, a reversal to the 38.2% retracement, and a move back up to the same price as the top of the first move.
Now, look “inside” that second thrust up. It’s a miniature replica of the overall move! You can see that it goes up, retraces to the 38.2% retracement, and then heads back up to the top again.
Look even harder, and note that the first thrust has a single red candle about 2/3rds of the way through on the “overall” move, and a very flat candle in a similar spot in the “replica” move. There are a couple other, more muddy similarities, that are easy for me to picture but hard to describe. Are they a perfect match? No. But they are similar.
Of course, it doesn’t have to be so incredibly blatant to qualify for “fracticality.” But:
- Most people picture the famous Mandelbrot Set and its embedded self-similar replicas when they think of fractals.
- Blatant examples make for better blog posts.
August 1st, 2007 at 12:37 pm
what’s that nlack line on the candel chart?
August 1st, 2007 at 12:37 pm
what’s that black line on the candel chart?
August 1st, 2007 at 2:36 pm
That’s a Hull Moving Average.
August 2nd, 2007 at 4:01 am
I read Mandelbrot’s book “The Misbehavior of Markets” (I think that’s the title?). He used fractal simulations from computers to take a very simple pattern like a 1-2-3 retrace and piled them together fractally to come up with a large scale pattern that looked just like a typical stock chart. It was interesting, but (and he admitted it) not too practical for trading. He hoped there would be more research done in the area to learn to exploit fractals in the markets.
August 2nd, 2007 at 7:30 am
or maybe he knows exactly how to exploit them for trading. If I knew, I don’t think I’d publish it. In fact, I might even publish a book claiming that I didn’t know how, to throw people off my scent.
seriously, though, the only well-known practical use to come out of fractal work is variations on the hurst exponent. The QT ‘choppiness’ indicator, which my paintbars use, are based on that.
August 2nd, 2007 at 1:49 pm
I doubt he knows. He’s a hardcore mathematician as far as I can tell. Ever hear the one about An Engineer, a Physicist, and a Mathematician?
An Engineer, a Physicist, and a Mathematician all go the same Conference. University budgets being what they are, they all stay in the same cheap hotel. Each room has the same floor plan, has the same cheap TV, the same cheap bed, and a small bathroom. Instead of a sprinkler system, the hotel has opted for Fire Buckets.
The Engineer, Physicist, and Mathematician are all asleep in bed. At about 2AM, the Engineer wakes up because he smells smoke. He looks in the corner of the room and sees that the TV set is on fire! He dashes into the bathroom, fills the Fire Bucket to overflowing with water, and drenches the TV set. The fire goes out, and the Engineer goes back to sleep.
A little while later, the Physicist wakes because he smells smoke. He looks in the corner and sees that the TV set is on fire. He grabs a handy envelope, estimates the BTU output of the fire, scribbles a quick calculation, then dashes into the bathroom and fills the Fire Bucket with just enough water to douse the flames. He puts the fire out and goes back to sleep.
In a little while, the Mathematician wakes up to the smell of smoke. He looks in the corner and sees the TV on fire. He looks into the bathroom and sees the Fire Bucket. Having determined that a solution exists, he goes back to sleep.
QED, Mandelbrot has no clue :) Still, I’m eagerly awaiting your paintbar release.
August 2nd, 2007 at 1:55 pm
yeah, he probably doesn’t know anything. He seems to care more about being published than getting rich, anyway. I was just being silly. I’ve read the book as well.
August 2nd, 2007 at 2:22 pm
Yeah, me too. He’s probably made more money than me so far, so who am I to judge? ;)