Thursday , 25 July 2024

Invest With An Edge: The Wonderful World Of Fractals (+2K Views)

What are fractals, what causes them, and how we can use them to improve our trading? It’s ainvesting3 subject worthy of a lengthy research paper, but hopefully this article [and the following excerpts to whet your appetite to read the full article] will be a good introduction.

The comments above and below are excerpts from an article from written by Andrew McElroy which has been edited ([ ]) and abridged (…) to provide a fast & easy read.

Fractal Theory

What exactly is a fractal? I use the term to cover a wide range of slightly different things, but technically,

  • A fractal is a mathematical set that exhibits a repeating pattern displayed at every scale. It is also known as expanding symmetry or evolving symmetry. If the replication is exactly the same at every scale, it is called a self-similar pattern.
  • A fractal tells us what direction to expect and what the move could look like. At their best they provide a map into the future.
  • The best fractals of all are found when you can identify a feeling the market is giving you and when you have felt it before. It starts with something like deja vu; ‘I’ve done / seen / felt / traded this before’.
  • Surprise events can knock fractals off course, either temporarily or permanently. We can’t expect a repetition to carry on forever or the market will end up eating its own tail.
  • When analyzing the markets it’s best to keep an open mind; fractals don’t always have to make sense.

Do fractals work? Well not all of the time, but hopefully there’s enough evidence…[in the full unabridged article] to show they can help with trading decisions.

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