Fractal Theory I

[llIHeroic]

Introduction

I don't often post on ET now days. I find it difficult to happen upon quality discussions without having to sift through unproductive tangents or antagonistic exchanges. However, I still enjoy these boards, what they represent, and the potential for meaningful dialogue about the market which exists here.

I happened upon these boards several years ago, where I quickly stumbled upon threads and materials presented by DBPhoenix. His perspective about the market resonated with me, and I studied the contents of his threads with enthusiasm, and found much validity there.

Later on, I began to read through older archives and became very interested in the presentations of Jack Hershey, and their re-iteration by SpyderTrader, the latter whom I had regretfully arrived too late to engage in direct dialogue with. After about two years of persistent study and very valuable correspondences with several practicioners of the same P/V model I'd been studying, I feel I have a decent grasp on the fundamentals of it.

Thread Purpose

I regularly receive private messages about various aspects of JH-esque P/V Technical Analysis, which I have decided for simplicity's sake to refer to as Fractal Theory, and it has always been a notion in the back of my mind to attempt to re-present these same concepts I've studied from users past at a time when I feel sufficiently qualified to do so.

So, I decided to form this thread in case there is any present interest in Fractal Theory. I have no agenda to push or thesis to prove, but I would like to offer support and assistance for a time if there is currently anybody who is interested in these materials as I have been. The market still surprises me occasionally, and I know for a fact there are more skilled practitioners of these methods who still occasionally visit this site, but I do feel I know enough to be able to offer some degree of value.

Logistics

Therefore, I welcome anyone who would like to question me about my own understanding of Fractal Theory, or would like a place to think out-loud and test their own observations of this brand of Technical Analysis.

I am not interested in meeting demands for proof or debating the validity of these materials. I feel the burden of obtaining sufficient proof or judging these concepts as incomprehensible and/or false resides on each individual for themselves.

My knowledge of Fractal Theory is presently incomplete, yet ever slow-growing, and I will try to be up-front about certain sequences or mechanics that I do not have a full grasp of if and when they are brought up.

I intend to post some basic introductory materials and participate in discussion if any interest arises, or let the thread die quite quickly if it doesn't feel helpful, useful, and productive. Any other students of this paradigm are more than welcome to chime in and teach me a thing or two.

Detractors and antagonists will be quickly ignored without fanfare. I would encourage anyone who is not interested in participating towards the stated purpose of this thread just to ignore it and move on.

 

[llIHeroic]

Where to Begin?


The market operates continually, but is commonly viewed through the lens of data slugs bundled during a certain time interval. We can view the Open, High, Low, and Close of a single bar, along with the amount of contracts or shares traded. So, a single bar is the most basic data set we are given from a chart. All bars save Doji Bars have a dominant sentiment. They either advance or decline price over their lifespan. Image "[11-18] Fractals" illustrates this.


The next most basic data set we can see from a chart is one bar compared to the previous bar. We can see if the volume traded increased, decreased, or was static compared to the last bar. We can also see if price advanced higher, didn't enter new territory, or declined lower than the last bar. We can also compare the relative volatility of these two bars, by looking at which is longer.


Image "[11-18] Fractals" also illustrates how we can draw a diagonal right trend line between the points on the right side of the bars, and place a parallel line on the left side, fixed to the bar with greater volatility. For discussion purposes, we will call this an FC [Fastest Container].


An opposing FC begins when a bar translates in the opposite direction of the established container. FC's can be compared to each other, along with the relative behavior of volume throughout their lifespan, in order to form larger fractal trends. We can discern the dominant sentiment, or the direction that price is advancing in over a larger period of time more gradually, from these comparisons, as shown in Image "[9-24] Trend Basics".


Within Image "[5-28] Real-Time FCs", I’ve taken a sample from a 5m bar chart of NQ futures from 10.40 EST, and illustrated that this process can be done in real time, and immediately after their completion, FCs can be compared to one another in order to determine dominance. Volume plays an integral role in this analysis as well, but I’ve focused on price for the time being as a place to start.


This method is a way of viewing the market, not a system of rules, and there are many contextual variations that will slightly affect behavior. Any individual new to these concepts can start observation and testing of them by beginning to annotate, observe, and study FCs, and how they relate to one another.

 

[tiddlywinks]

Hi Hero:

I use "Fractal Theory" everyday. But as I'm sure you'll recall, I am a bit rogue in my implementation. As some of the "teachers" would say, I (re)invent! Nonetheless, my fractal theory inventions work (for me) within and along side the larger scope of other proven methodologies.

It will be fun to compare a few notes!

 

[tiddlywinks]

What I'm looking at pre-market for NQ.
Note: NQM5 explicitly, not continuous contract. RTH only.

I'll leave interpretation and teaching to Hero or others.

 

[tiddlywinks]

NQ updated thru 8:30a (bar 25).

I will be happy to entertain questions. But others would be more appropriate for teaching the methods as JH and Spyder teach/taught them. If it is preferred that I do not post in this thread for whatever reason, just say so. I do not want to detract from the OPs intentions in any way.

 

[llIHeroic]

Hi Hero:

I use "Fractal Theory" everyday. But as I'm sure you'll recall, I am a bit rogue in my implementation. As some of the "teachers" would say, I (re)invent! Nonetheless, my fractal theory inventions work (for me) within and along side the larger scope of other proven methodologies.

It will be fun to compare a few notes!

tiddlywinks,

Great to hear from you. If anything withstands the ultimate test of consistent execution, one could hardly say it has no value. Thank you for posting some of your charts.

As any observers may be able to see, tiddlywinks is illustrating the trends which occur over a longer interval of time to help with his analysis. By starting with a single bar, followed by the relation of it to the previous bar, it is possible to construct larger trends in a uniform fashion just as easily as drawing the FCs themselves. I plan to continue on into demonstrating this if there appears to be any interest.

For now, see Image [5-29] Basic Analysis which takes a closer look at a few of the opening bars this morning and the FCs they form. I put down some observations which may be helpful when determining dominance. Also, I've posted Image [5-15] Relative Volume attempting to demonstrate some of the information given by Bar closes and relative volume. As always, take this as a guideline, not an absolute rule, since contextual factors we haven't gotten into yet will affect how these principles play out.

 

[llIHeroic]

One of the primary purposes of detailed and thorough annotation is to break down the process of understanding the market into consistent and defined parameters. We want to bring the intuition that our minds build while studying the market into the light so the reasoning process can be understood, studied, tested, and improved upon.

The completion of every bar is known to the trader. The completion of every FC can be known to the trader. When these events complete, we compare them to the former event and analyze the relation between them. We take our conclusions and use them to help us understand the sentiment of the market. I've attached a few bars from this afternoon with a few more basic comments in Image: [5-29] Understanding FCs.

Also! I've attached a basic quiz in Image: [5-29] FC Practice. If there is anyone with an interest of seeing this thread continue, please fill it out and post it. We will discuss this quiz for the weekend while the market is closed.

 

[smwbbe]

Here are my $0.02 regarding the FC practice picture. However, without the open and close portions of the bar, it takes a little more imagination. Also, with volume missing, one is also left without a big piece of the puzzle…

Three of the 4 black bars make HHs and HLs than each subsequent bar to show definitive up movement. The 3rd bar is encompassed entirely within the shadow of the 2nd bar which represents a pause/non-dominant movement.

Each of the 4 red bars make a LL than the previous bar with the first red bar breaking the RTL of the up FC. With regard to distance, more distance is traveled with the red FC so therefore I'd presume down to be more dominant. The end of the red FC is met with an outside bar (bar that is both higher and lower than the previous bar), but without knowing if there's increasing or decreasing volume, there's less certainty about a change in dominance - especially with price being contained by the RTL and LTL.

 

[llIHeroic]

FC Discussion

Regarding your observations, it seems that you've drawn a solid conclusion regarding the relation between the two; that the second FC appears to represent a stronger sentiment than the first FC. It is good you've noted that the second FC has no internal bars, each one makes a lower low.

Very important as well, is that as we draw FC #2 in Real-Time, we will see that the first established measure of volitility is expanded halfway through the container. Also, another very important difference between the two is that the last bar of FC #1 failed to reach the ltl, which is not the case for FC #2.

Regarding Future Topics

Generally speaking, the sentiment of any trend must first exhaust it's momentum before a dominant trend in the opposite direction begins. If we see increasing volatility, or price maintaining pace, there is less reason to expect a change in dominance at that time. There are continuation sequences and change sequences that must play out after certain events which represent this concept.

If the thread gets far enough, we can delve into what kinds of conclusions and expectations we can have about the future based off all of the data given by completed FCs, but for now it is important to be able to understand all of the information that can be seen with a few consecutive bars and the relationships between them.

Thread Status

For now, I've attached a few more observations of my own about these FCs in response to your effort. I see dozens of views for the images I've posted, but it doesn't seem as of yet that there are many individuals interested enough to engage in active participation. If it doesn't appear like there is enough public interest to warrant a thread about these topic at the moment, I intend to shelf the notion for another time and continue with the occasional private correspondence in the mean-time.

 

[midtown]

Thank you for starting this welcome thread. I have to admit that the elements of the JH method that you are describing have not been my focus. I have been relying on RTL's, volume and sequence completion. The relationships you are examining are most important and probably where I am most deficient. Hopefully I will be able to contribute something of value as this moves forward.