Again, fractals ...

The term "fractal" has become firmly established in the lexicon of most traders. In some way contributed to this remarkable "Trading chaos" Bill Williams. In this book, some of the self-similar image formation is proposed to call fractals. Some debate about mathematically incorrect use of the term "fractal". [1] But the word is beautiful, and it will be used. And the purpose of this article - to propose a new algorithm of formations, called fractals.

Open the book of quotations

"Fractal model on the chart of any time period is a minimum of five consecutive bars. Our working definition of the initial, or initiating, fractal based on the fact that the average bar must have the highest (or lowest) value compared with the two preceding and two succeeding bars ". [2] This is a slightly edited the quote from the book. It is easy to see that a fractal is a series of price bars, one of which creates a price extremes: at this point the price curve to change direction.

A similar approach is proposed by Thomas R. DeMark in his book "Technical Analysis - a new science". [3] Pivot point he called reference and provided for them the order number. Thus, the reference point of the first order is formed by three bars, and the reference point of order - five. A formation in the figure corresponds to a point of order, and if you remove the extreme bars, it will become the reference point of the first order. Both authors took into account that if the subsequent bar is in the shadow of the previous one, it is absorbed in the previous analysis is not used. Formation B and D show the bars are absorbed.

Obviously, like any name similar to parts of graphics, in any case, it shows a reversal in the direction of price movement. In order to understand the proposed method B. Williams, you need to follow the interaction of fractals. First, there are two types of fractals: start and alarm. We see that the "signal" indicating downward movement: should prepare for the opening of a short position. The figure shows the level at which to sell, and stop levels. It is easy to see that the level of sales the same as the fractal signal to sell. A stop level is determined by a simple rule: the two closest opposite fractals selects the remote peak.

A new look at fractals

Before offering new formation, which traditionally also called fractals, agree on terms. Any movement of prices in the markets going in two directions: the movement of the trend and kickbacks. The movement on the trend called "momentum", and let it remain rollback "rollback". Every trader wants to burn a possibly strong, and roll back - on the contrary. The difference between the value of the price increase in the pulse and its fall during the rollback is called "leverage". What it is, the greater the current yield trader. With zero lever prices returned to the original, but with a negative lever turns loss.

The figure shows four formations, which are called fractals, and all variations chart describe with them. A formation is said to be a "true bullish fractal." Accordingly, B - «false bullish fractal." Formations C and D - «true bearish fractal" and "false bearish fractal."