Fractal Theory I

[midtown]

Could this be a possibility?

 

[tiddlywinks]

A possibility, sure. But there is not enough info regarding FC1 to determine traverse points with any kind of certainty.

The high of FC1 may or not be an FTT of a traverse. However, it is definitely an FTT of the FC1 tape. The last bar of FC2 (the outside bar) can not be "taped"until the NEXT bar. Marking the bottom of FC2 as a P3 is just a guess on your part. We don't know what the traverse container is given the info provided. And we don't know how the outside bar will resolve for the FC2 tape.

Ive attached a taping pdf I found somewhere (either a Spyder or a JH thread on some forum, not necessarily on ET). It should be helpful, regarding tapes. The Outside bar taping rules are near the end.

 

[midtown]

Thanks for your comments. I couldn't agree more. And also for the tapes pdf... it's great to have that. Actually I would never put in a P3 of a traverse without confirmation or assume that price would change direction on the basis of an outside bar. What I was attempting to bring out was that the increased volatility of the price action moving down can be, at least to me, very misleading without knowing the volume and the context, and that from what we see here, it could go up or down. I am anxious to learn what the price action can tell me since I have no idea yet whether the down trend is dominant or non-dominant.

 

[DaGabaGoo]

You guys continue to fall into the same trap! Where's the context? Where's the volume? Don't worry, frenchfry will be here soon to confuse you even more.

 

[llIHeroic]

Great discussion guys. Tiddlywinks had a very good point that the last bar shown in my example isn't likely to be the point 3 of a larger fractal, and even if it is, placing it at the moment would be premature.

However, this whole method of learning hinges on creating hypothesis about he market and testing them. It was excellent that you were able to see a possible outcome and you shared it with us. The attachment about tape drawing is quite useful.

I think one of the most important building blocks to start with is the correct annotation of FCs [Fastest Containers], which allows the observer to begin studying how they change, defining context and sequences in an objective manner, and testing hypothesis against the reality provided by the market until consistently reliable procedures are learned.

Thanks again for the participation by everyone. Tomorrow I will pick out a container or two from the session, and we will try to work at understanding the events unfolding within it on a bar by bar basis. All trends contain the same sequence of events, whether over the course of a single bar, or a much longer trend channel. These sequences continue in one direction until they begin to exhaust, and then begin to form in the opposite direction.

Image [11-18] Fractals which is attached to post #2 of this thread demonstrates this concept, which holds true for larger and larger fractals spanning up to trends with lifespans of several years. We will work at seeing this reality in play during market operation, by annotating building blocks and using them to build larger trends.

 

[baro-san]

NQ snippet (May 29, 2015) similar to the quiz.

 

[llIHeroic]

Thanks for identifying and posting that example baro. Here are two real containers formed by the market. Once beginners have proper bar-by-bar FC annotation down and are able to confidently segment market data into completed FCs, we want to begin taking a look inside of the container itself.

All trends have a minimum of three movements. There is a dominant movement from the point at which our trend-lines begin [1]. Then, a dominant move occurs to bring us to the point at which the ltl is fixed [2]. Then, there is a non-dominant movement in the opposite direction of the dominant sentiment, and the volatility of this movement will fail to exceed the [1] - [2] movement. This movement gives us [3] in order to form the rtl. After which another dominant movement occurs, and we can compare the volatility of this second dominant movement to the volatility of the first dominant movement. If it exceeds the first, price will pass through the ltl.

So, three movements minimum in a trend. Dominant, Non-Dominant, Dominant. Volume will typically increase over the dominant movements, and recede during the non-dominant movements in a trend. I've tried to illustrate these points in Image [6-1] Real Example below. Again, after learning the proper annotation technique in order to create completed FCs, we want to begin studying the events which comprise them in order to thoroughly understand them.

 

[llIHeroic]

In order to discuss Fractal Theory, over the years many vocabulary words have been used to describe particular situations which arise in the market, or to describe various annotations.

In this thread, we've already been using the vocabulary term "FC" to refer to the fastest visible containers which can be drawn starting with two bars.

After understanding FCs, the next goal is to begin to merge them into larger trends, in the pattern which has already been introduced. Three completed trends on a faster fractal will act as building blocks, which will each be the legs of a larger fractal up-trend with the following sequences in price movement and relative volume. [IV = Increasing Volume].

Dominant / Non-Dominant / Dominant
[DV -> IV] [DV] [IV]

I've attempted to provide a visual of this with Image [6-2] Type C Simple Mod.

So, when an FC, or a series of FCs, completes which has all of the necessary components to form a leg of the larger trend, I refer to it is a BBT [Building Block of Tape]. I refer to a Tape as the larger fractal trends we see on any chart, which always contain a full volume sequence. Being able to correctly annotate Tapes really provides invaluable context for any trades that are going to be made.

We've covered FCs, now we need to begin to understand how to label and annotate BBTs, which can be formed into Tapes.

 

[llIHeroic]

Here comes the part that usually loses most people. I will illustrate the theory, but it only seems to click after an intense amount of observation and study.

However, these principles always hold true. There is never a time when the market does not form a trend comprised of three smaller equal and opposite trends.

By using a string of consistent logic; one can apply the same principles used to annotate two bar FCs, to build BBTs, to build Tapes, to build Traverses, etc.

Subtle changes in pace via relative peaks and troughs of the sequences, along with laterals and VE's and various continuations stretch or compress the completion of these sequences, but they always occur if you know how to read the context and understand what is required in order to begin the next sequence.

I will leave the thread open for questions for a while, and perhaps post a few more observations of mine, but I haven't seen this paradigm transferred successfully without very active participation and persistence in study.

 

[llIHeroic]

This is what the near-end of a Tape looks like. We don't know anything in advance, but all sequences have reached sufficiency for completion, and every sub-fractal to the tape will begin to fail to meet or exceed prior volatility.

We want to watch for a change sequence as volume, although low in pace, will begin to exhibit dominance in the short direction. We will see a dominant short FC and begin building BBT 1, down, starting the whole process over again. The same cycles repeat day in and day out.