How to trend the extremely volatile forex markets. Do we have an edge in the forex markets?The fractal technical analysis can provide some help in this forex adventure. Here I show you some of my observations. We have two graphs, the first are drawn only trend lines. The second are plotted trend line but in combination with FGDI (I like to call it Fiji ;)) and the variation of the Hurst exponent. Do you see the difference?
Then I have plotted a rectangle with the area in which we ask do we have a trend or range? The Outcome of this is very important because from this it will depend what strategy we use.
And here on the second graph just shows us there is the FGDI with blue dimension. And when we have mainly blue dimension it is likely to have precisely Range for me there is a correlation greater than 0.5. However each Range not necessarily be exactly horizontal even I think this is an exception. Range quite often is positioned somewhere up or down and that makes frequent (almost certainly) its confusion with trend.
So what? We have a clear - and lower lows and lower highs?
Do we have the perfect trend lines that I have formed?
The difference is fundamental. When we have a Range we expect a break out, and when we have trend we expect a consolidation. Everything works, well almost, works in trend. In Range market that is not true.
Again, I repeat, we do not use the term trend in terms of technical standard anallysis. Maybe I will try to make some basis definitions of fractal technical analysis:
Strong Trend: directional movement of high volatility characterized by low fractal dimensio less than 1,5
Weak trend: directional movement of medium volatility characterized by low fractal dimension less than 1,5 (often an element of a wide Range from - a large order), sometimes making the same price patterns as broad Range pattern.
Wide Range: Top – often making sinusoidal movements with small frequency and average volatility characterized by a high fractal dimension over 1.5
Narrow Range: Most often sinusoidal movement with high frequency and low volatility characterized by higher fractal dimension above 1.5: Expect a break out.
It is very interesting because there is mixing concepts. For example, as wide Range and the weak trend can have directional movement and can be confused by the standard trend technical analysis (even a flat Range is an exception). But these the weak trend and the high volatility range are different things.
Which in this case I consider we have a high volatility range suitable for trading with Range strategies: Bolinger bands (the price rarely go beyond two standard deviations of Bolinger Bands makes it very safe entry points in case of range, I we do have a storng trend (high volatility with low fractal dimension) this is related to the fractal hypothesis: fractional Brownian motion http://e% 20n.wikipedia.org/wiki/Fractional_Brownian_motion maybe I do not express precisely but the coefficient of variation of such a distribution is infinite, this shows how and why you see the price going beyond the two standard deviations of the Bollinger bands.
If we have range we can use range tactics: oscillators, levels of support and resistance, Price Action, whatever you think will work in range.
By the second picture I will enumerate the patterns we have discovered:
Pattern 1
Breakthrough of a blue zone in red, it is often associated with transition from one phase to another from range to Trend. This is the most important pattern of the fractal analysis.
Pattern 2
Second Peter is associated with positive variation of Hurst exponent. This is a fine tuned analysis of the FGDI. And again if we see a peak we have to be waiting for something to happen.
Pattern 3
The Third pattern I have not drawn but is associated with expansion of channels of standard deviation of the FGDI. This means a strong movement
Pattern 4
Look at he Hurst difference. When we have a trend it is smooth, when we have a range we have a ruffled line of the Hurst difference.
Characteristics of noise
The last thing that I want to clarify is that when we have strong red dimension we can observe the phenomenon of black noise. This means an abrupt change of direction without any consolidation, technically Peter 1-2-3. No cups, no double, triple bottoms. Just a sharp price drop from one direction to another. In consolidation and Range have pink noise as the price turns mad and eat your short stops just before to continue in the right direction.
Let's look at the graph:
Naturally, in the graph the trend movement seems to have started i arround 15:00 on 2 of June. And I ask myself, was I blind, that I did not see it. But that was so easy, why not I did not see it.
But fractal analysis shows that there is a trend component of the range. The Real trend starts June 2 at night and at the beginning of June 3 and its scale is very limited (and anyway if we plot afterwards the trend lines it looks that it has begun much earlier,) (Moreover the fractal dimension varies very long in the afternoon around 1.5, which means that the movements can not be predicted, everything is possible),
The beginning of the trend movement is made by a fractal break-out from blue zone to red zone. This happened on 3 June in the morning. We see clearly the fractal breakout. And in the same time we have a peak in the variation of the Hurst exponent.
After that the dimension increases and we enter a period of adjustment and this is the Range of the morning of 3 June.
Technically the correction can be analyses as a Ross Hook, with the possibility of the TTE (Traders Trick Entry). And indeed it turned out that the break out is false.
From a perspective of fractal analysis we see it in real time. We observe an increasing dimension and reducing the variance of Hearst. The up movement was to go nowhere
For this kind of phenomena the standard technical analysis has no explanation. The trend lines are often misleading. But now we have the fractal technical analysis LOL.
If these assumptions are correct we have a new and very powerful tool for technical analysis. These ideas are super fresh, and now we must verify them. The positive point is that the fractal approach provides an element of objectivity, which may improve the technical analysis. And it gives an edge – clarity in the real time technical analysis. Afterwards everyone can make a precise technical analysis.
Then I have plotted a rectangle with the area in which we ask do we have a trend or range? The Outcome of this is very important because from this it will depend what strategy we use.
And here on the second graph just shows us there is the FGDI with blue dimension. And when we have mainly blue dimension it is likely to have precisely Range for me there is a correlation greater than 0.5. However each Range not necessarily be exactly horizontal even I think this is an exception. Range quite often is positioned somewhere up or down and that makes frequent (almost certainly) its confusion with trend.
So what? We have a clear - and lower lows and lower highs?
Do we have the perfect trend lines that I have formed?
The difference is fundamental. When we have a Range we expect a break out, and when we have trend we expect a consolidation. Everything works, well almost, works in trend. In Range market that is not true.
Again, I repeat, we do not use the term trend in terms of technical standard anallysis. Maybe I will try to make some basis definitions of fractal technical analysis:
Strong Trend: directional movement of high volatility characterized by low fractal dimensio less than 1,5
Weak trend: directional movement of medium volatility characterized by low fractal dimension less than 1,5 (often an element of a wide Range from - a large order), sometimes making the same price patterns as broad Range pattern.
Wide Range: Top – often making sinusoidal movements with small frequency and average volatility characterized by a high fractal dimension over 1.5
Narrow Range: Most often sinusoidal movement with high frequency and low volatility characterized by higher fractal dimension above 1.5: Expect a break out.
It is very interesting because there is mixing concepts. For example, as wide Range and the weak trend can have directional movement and can be confused by the standard trend technical analysis (even a flat Range is an exception). But these the weak trend and the high volatility range are different things.
Which in this case I consider we have a high volatility range suitable for trading with Range strategies: Bolinger bands (the price rarely go beyond two standard deviations of Bolinger Bands makes it very safe entry points in case of range, I we do have a storng trend (high volatility with low fractal dimension) this is related to the fractal hypothesis: fractional Brownian motion http://e% 20n.wikipedia.org/wiki/Fractional_Brownian_motion maybe I do not express precisely but the coefficient of variation of such a distribution is infinite, this shows how and why you see the price going beyond the two standard deviations of the Bollinger bands.
If we have range we can use range tactics: oscillators, levels of support and resistance, Price Action, whatever you think will work in range.
By the second picture I will enumerate the patterns we have discovered:
Pattern 1
Breakthrough of a blue zone in red, it is often associated with transition from one phase to another from range to Trend. This is the most important pattern of the fractal analysis.
Pattern 2
Second Peter is associated with positive variation of Hurst exponent. This is a fine tuned analysis of the FGDI. And again if we see a peak we have to be waiting for something to happen.
Pattern 3
The Third pattern I have not drawn but is associated with expansion of channels of standard deviation of the FGDI. This means a strong movement
Pattern 4
Look at he Hurst difference. When we have a trend it is smooth, when we have a range we have a ruffled line of the Hurst difference.
Characteristics of noise
The last thing that I want to clarify is that when we have strong red dimension we can observe the phenomenon of black noise. This means an abrupt change of direction without any consolidation, technically Peter 1-2-3. No cups, no double, triple bottoms. Just a sharp price drop from one direction to another. In consolidation and Range have pink noise as the price turns mad and eat your short stops just before to continue in the right direction.
Let's look at the graph:
Naturally, in the graph the trend movement seems to have started i arround 15:00 on 2 of June. And I ask myself, was I blind, that I did not see it. But that was so easy, why not I did not see it.
But fractal analysis shows that there is a trend component of the range. The Real trend starts June 2 at night and at the beginning of June 3 and its scale is very limited (and anyway if we plot afterwards the trend lines it looks that it has begun much earlier,) (Moreover the fractal dimension varies very long in the afternoon around 1.5, which means that the movements can not be predicted, everything is possible),
The beginning of the trend movement is made by a fractal break-out from blue zone to red zone. This happened on 3 June in the morning. We see clearly the fractal breakout. And in the same time we have a peak in the variation of the Hurst exponent.
After that the dimension increases and we enter a period of adjustment and this is the Range of the morning of 3 June.
Technically the correction can be analyses as a Ross Hook, with the possibility of the TTE (Traders Trick Entry). And indeed it turned out that the break out is false.
From a perspective of fractal analysis we see it in real time. We observe an increasing dimension and reducing the variance of Hearst. The up movement was to go nowhere
For this kind of phenomena the standard technical analysis has no explanation. The trend lines are often misleading. But now we have the fractal technical analysis LOL.
If these assumptions are correct we have a new and very powerful tool for technical analysis. These ideas are super fresh, and now we must verify them. The positive point is that the fractal approach provides an element of objectivity, which may improve the technical analysis. And it gives an edge – clarity in the real time technical analysis. Afterwards everyone can make a precise technical analysis.
