A Fractal Market

[robertm 10]

People just love to overcomplicate things :crap:

 

Markets are fractal in so far as we can see the same patterns (setups) repeating regardless of instrument and time frame, allowing for a singular system approach. This is not "perfect" though (nothing is), at too small a time frame it will break down as price cannot move sufficiently to form (ie, when bars are too small). And no one system is the perfect solution for every market at every time.

 

To understand this more look at the harmonics in the market. Have you ever seen the youtube video where they sit a flat surface on a speaker, cover it in sand, and start ramping up the frequency? As the frequency increases the patterns formed will alter to resonate with the new environment.

 

Anybody that was trading tick charts (maybe range bars, don't know as I don't use them) on the ES or similar around this time last year when the market was undergoing rapid expansion, then collapse, of both range and volatility would have seen this happen. The patterns were repeating, and found throughout many instruments and time frames, but the changes in range/volatility changed the frequency of the market, thus changing the patterns emerging at that time

 

Whether or not that is the way you find best to trade is beside the point, people see what they want to see regardless of the information in front of them.

[motorway 10]

People just love to overcomplicate things :crap:

 

Markets are fractal in so far as we can see the same patterns (setups) repeating regardless of instrument and time frame, .

 

THERE IS A HUGE COMPLICATION ALREADY

 

Unlike other physical processes

 

trading only ever occurs in a moment of NOW

 

whether I buy to hold for the next fifty years

fifty months , days or seconds...

 

If I buy or sell,. I do so at the same time as everybody else

In fact I might well be buying off someone who only held for fifty seconds

 

THERE IS NO PREFERRED distinct/separate TIME FRAMES

 

( THAT IS WHY VOLUME IS SO IMPORTANT )

 

We can nor really represent long term Investors by

monthly charts & long term averages and short term traders by tic charts & oscillators or what ever..

 

WE CAN ONLY LOOK AT DIFFERENT SCALES OPERATING AT THE SAME TIME .

 

imo

 

YES I think most TA is unnecessary and complicating

 

markets go up down & sideways

 

And They are doing it at the SAME moment IN the same moment..

 

Edgar Peters

 

All of the investors trading in the market simultaneously have different investment

horizons. We can also say that the information that is important at

each investment horizon is different. Thus, the source of liquidity is investors

with different investment horizons, different information sets, and consequently,

different concepts of "fair price."

 

I distinguish for Time FRAME ( a distorted picture of reality a look back )

To a Time Horizon ( forward Looking expectation , A Likelihood )

 

For damgermouseb

 

A R/S Approach to Trends Breaks Detection

 

 

and on

Not sure what you mean by "BIG problem is the incorporation of various volatility lags"?

you measure volatility in frames of time you get lags

you measure volatility in terms of moves --> no lag

 

 

 

Motorway

[zdo 20]

People just love to overcomplicate things :crap:

 

Markets are fractal in so far as we can see the same patterns (setups) repeating regardless of instrument and time frame, allowing for a singular system approach. This is not "perfect" though (nothing is), at too small a time frame it will break down as price cannot move sufficiently to form (ie, when bars are too small). And no one system is the perfect solution for every market at every time.

 

To understand this more look at the harmonics in the market. Have you ever seen the youtube video where they sit a flat surface on a speaker, cover it in sand, and start ramping up the frequency? As the frequency increases the patterns formed will alter to resonate with the new environment.

 

Anybody that was trading tick charts (maybe range bars, don't know as I don't use them) on the ES or similar around this time last year when the market was undergoing rapid expansion, then collapse, of both range and volatility would have seen this happen. The patterns were repeating, and found throughout many instruments and time frames, but the changes in range/volatility changed the frequency of the market, thus changing the patterns emerging at that time

 

Whether or not that is the way you find best to trade is beside the point, people see what they want to see regardless of the information in front of them.

 

robertm

 

I get what you’re saying but it’s …Way under complicated

A ‘similar pattern’ does not a fractal make.

That’s just co-opting the word for a catchy buzzword like Bill Williams, Jack Hershey, etc try to do … obviously, with much more success than is good for the trading ‘public’ btw

Real fractal work don’t allow the occasional spotting of ‘one’ and letting the rest be noise, etc.

 

The ‘people see what they want to see’ line is getting tired too – especially the ‘want’ part.

If I saw what I wanted to see my net worth would be in the billions and so would yours… (my gift to you… happy holidays already)

We routinely ‘see’ within the constructs of what we are predisposed to ‘see’- but that is not a necessity. We can at any point choose to improve at seeing what is...

[robertm 10]

robertm

 

I get what you’re saying but it’s …Way under complicated

A ‘similar pattern’ does not a fractal make.

That’s just co-opting the word for a catchy buzzword like Bill Williams, Jack Hershey, etc try to do … obviously, with much more success than is good for the trading ‘public’ btw

Real fractal work don’t allow the occasional spotting of ‘one’ and letting the rest be noise, etc.

 

The ‘people see what they want to see’ line is getting tired too – especially the ‘want’ part.

If I saw what I wanted to see my net worth would be in the billions and so would yours… (my gift to you… happy holidays already)

We routinely ‘see’ within the constructs of what we are predisposed to ‘see’- but that is not a necessity. We can at any point choose to improve at seeing what is...

 

They see what they want to see until they can see otherwise. Only time and experience can accommodate this. Even if you lay out what you do step by step, without seeing things from the same base construct (or POV shall we just say?) they will be unable to interpret the information being presented to them.

 

No idea who Bill Williams, Jack Hershey are though, I tend to find my own judgments

[BlowFish 10]

Bottom line for me – the real auction has NO fractals above or below it…ie the actual auction is not a ‘fractal’ of a larger or smaller ‘economy’ - so I can’t figure why to be looking for fractals in the representations of the auction – especially since what I found when looking for them (for freakin years) didn’t hold up in practical trading and systems development…

 

I would disagree. Do you think someone bidding for several millions (or 10's of millions) of an instrument over days, weeks or even months, is not 'above' some one buying a 100 shares?

 

What is 'the real auction'? and how is the method of buying and selling relevant to the analysis of a time series?

[zdo 20]

Wow the grab bags at this fractal party are amazing – reach right in! No telling what you’ll pull out.

 

BF, check around. You can find stoopidity in any and all my posts. So re “What is 'the real auction'” The real auction is the instantaneous objective and projective whole market for an instrument – irrespective of the millions, no billions, of individual constructs about it. (Maybe TL is not a good circle in which to use the term. It may be just as atrocious a buzzword as ‘fractal’ is becoming… yada yada) All I’m doing here is expressing my personal doubts about the whole market fractals thang and my reservations that there are widespread efficiencies in pursuing ‘fractal’ centered trading methods.

(And yes, THE auction may be comprised of multiple simultaneous auctions. Size matters. But, I also don’t see the small players and the big players in any ‘fractal’ relationships there either btw)

 

The main point of all my posts in this thread is: In the representations of THE auction (be they barcharts, timeframes, travel, time series, wave counts, whatever…) my limited brain has NOT found fractals. It has found ‘fractal – like’ and ‘transient neighborhoods of fracticality’ – but not real fractals. In resistance to closure, I’m not going so far as to say they can’t be ‘quantified’ - but it gets downright quizzical to me if it only shows / if you can only find ‘fractal’ in certain types of representation of the auction and not the others.

 

My rough summation is that ‘fractal’ (not the co-opted buzzword type but in the purest mathematical sense ) is just not likely to be as effective ‘empirically’ in the real world as some noobies might ‘want’…

[robertm 10]

But beyond Quants & Algo's, do the other 99.99% of traders need a purest definition in order to gain an edge over the markets?

[BlowFish 10]

ZDO I am not sure I completely understand where you are coming from. The auction is just a process that generates the time series. Looking at it seems to me like looking at tides or weather patterns to determine if coastlines are fractal. Personally I think some people read too much into 'the auction'. Maybe a concise definition might help me understand? The way I understand it, its pretty irrelevant to the discussion but that may be because my definition is different to yours.

[motorway 10]

ZDO I am not sure I completely understand where you are coming from. The auction is just a process that generates the time series. Looking at it seems to me like looking at tides or weather patterns to determine if coastlines are fractal. Personally I think some people read too much into 'the auction'. Maybe a concise definition might help me understand? The way I understand it, its pretty irrelevant to the discussion but that may be because my definition is different to yours.

 

A Coastline has one interface Where the land meets the Sea

Unlike like the Weather Where the Coastline is a Series of ISOBARS nesting within each other like "Russian Dolls" (see recent edition of NEW SCIENTIST )

 

It is a series of Coastlines --> Multi Fractal

 

There are similar nestings in the Markets

 

There is where BID meets OFFER.... But there are also forces above and below the last price ( Richard Wyckoff ) ready or not to STEP in .. If the Price Coastline SHIFTS

 

So there is the price Curve---> The Coastline But also various ISOBARS of DYNAMIC PRESSURE

 

Edgar Peters

 

THE SOURCE OF LIQUIDITY

 

If all information had the same impact on all investors, there would be no liquidity.

 

When they received information, all investors would be executing the same

trade, trying to get the same price. However, investors are not homogeneous.

Some traders must trade and generate profits every day. Some are trading to

meet liabilities that will not be realized until years in the future. Some are highly

leveraged. Some are highly capitalized. In fact, the importance of information

can be considered largely dependent on the investment horizon of the investor.

 

Take a typical day trader who has an investment horizon of five minutes and

is currently long in the market. The average five-minute price change in 1992

was — .000284 percent, with a standard deviation of 0.05976 percent. If, for

technical reasons, a six standard deviation drop occurred for a five-minute

horizon, or .5 percent, our day trader could be wiped out if the fall continued.

 

However an institutional trader—a pension fund, for example—with a

weekly trading horizon, would probably consider that drop a buying opportunity

because weekly returns over the past ten years have averaged 0.22 percent

with a standard deviation 2.37 percent

 

In addition, the technical drop has

not changed the outlook of the weekly trader, who looks at either longer technical

or fundamental information.

Thus, the day trader's six-sigma event is a

0.15-sigma event to the weekly trader, or no big deal. The weekly trader steps

in, buys, and creates liquidity. This liquidity, in turn, stabilizes the market.

 

All of the investors trading in the market simultaneously have different investment

horizons. We can also say that the information that is important at

each investment horizon is different. Thus, the source of liquidity is investors

with different investment horizons, different information sets, and consequently,

different concepts of "fair price." Edgar Peters

 

Markets are Fractal because of Different Time Horizons

Not because of Different Time FRAMES

 

YES there is only the "AUCTION" No Time Frames Just a NOW.. Just THE

PRICE curve .

 

But there are Dynamic Forces ABOVE and BELOW ...

 

There are different TIME HORIZONS...

These are expectations LOOKING FORWARD and constantly changing..

 

Motorway

[robertm 10]

A time horizon will influence the time frame you trade though. Most poeple don't pick a multi year weekly hold out of a 144 tick chart (but if you can you are in for a hell of a good trade!)

[zdo 20]

But beyond Quants & Algo's, do the other 99.99% of traders need a purest definition in order to gain an edge over the markets?

 

Fractals is a niche. An obviously and increasingly corrupted one. So far, this thread has not been talking about gaining an edge. It has been about fractals – their presence(s) and qualities. If I don’t think your .01% of Quants & Algo's are actually finding and trading ‘fractals’, then I certainly don’t think the other 99.99%, are, more casually, but still ‘purposefully fractal trading’. The drift of your posts is that everyone is trading fractals – just so long as we loosen up the definitions enough. The drift of my posts is that no one is really trading fractals, regardless of the purity of the definitions being applied...

[robertm 10]

Fractals is a niche. An obviously and increasingly corrupted one. So far, this thread has not been talking about gaining an edge. It has been about fractals – their presence(s) and qualities. If I don’t think your .01% of Quants & Algo's are actually finding and trading ‘fractals’, then I certainly don’t think the other 99.99%, are, more casually, but still ‘purposefully fractal trading’. The drift of your posts is that everyone is trading fractals – just so long as we loosen up the definitions enough. The drift of my posts is that no one is really trading fractals, regardless of the purity of the definitions being applied...

 

Then we at least all seem to agree that ONE method of trading involves patterns that replicate over time frames and time horizons

 

So moving on, is anybody game to try and tie range breakouts, Fibs or indicator only driven systems into that :rofl:

[zdo 20]

... is anybody game to try and tie range breakouts, Fibs or indicator only driven systems into that :rofl:

 

Sure. No problem. Just go to

US Special Forces Tracking and Counter-Tracking, TC 31-34-4, Sep 2009 - Wikileaks

 

:spam:

[BlowFish 10]

Fractals is a niche. An obviously and increasingly corrupted one. So far, this thread has not been talking about gaining an edge. It has been about fractals – their presence(s) and qualities. If I don’t think your .01% of Quants & Algo's are actually finding and trading ‘fractals’, then I certainly don’t think the other 99.99%, are, more casually, but still ‘purposefully fractal trading’. The drift of your posts is that everyone is trading fractals – just so long as we loosen up the definitions enough. The drift of my posts is that no one is really trading fractals, regardless of the purity of the definitions being applied...

 

Ahh that's a different argument though. It is a non sequitor though, just because no one uses them to trade does not mean they do not exist in financial time series. Btw. no one has suggested 'everyone is trading fractals'.

 

The definition for fractal, mathematical fractal, fractal dimension etc. are clearly defined no need to loosen or tighten definitions. The trouble is people seem to form opinions based on second or third hand posts by people who never went to the trouble of ever understanding the core concepts themselves. Just because F word used to be used all over the place mainly to market dubious systems a whole bunch of other 'experts' just dismissed the whole discipline.

 

That's true of many people in all walks of life they base there opinions on supposedly well informed pundits rather than taking the trouble to learn for themselves. The well informed pundits are often motivated by nothing more than there own prejudices! This is why the inter-web is as full of misinformation as it is information You can quote me on that if you like I am en expert :D

 

One of the few practical applications I can think of, that is quite accessible to the 'layman' is the polarised fractal efficiency indicator. Just an aside that occurred to me while I typed this. It's an interesting concept.

[DugDug 10]

there was an interesting article on BBC TV last night - how long is a piece of string?

Well worth watching, as it covered fractals.

 

Call me old fashioned but - fractals, the mathematical theories etc; were just that- theory.

The question as a trader is - can I make money out of it?

 

To put it in perspective - Why would anyone ever short a market? We all know that over the long term they rise. But in shorter time periods they do fall.

 

there was something also about - relativity and time and other physics stuff.

I dont know - I sometimes find that I make the same mistakes over and over again I just hope they get smaller in number and magnitude.

(I apologise for my random musings):missy:

[zdo 20]

Blowfish, wanted to take a moment and let you know I've not been ignoring your posts.

 

re “different argument” and “non sequitor “ Please forgive me (and virtually everyone else herein) for not having or taking the time to form good, sound “arguments” and or provide concise definitions. If you’ll check, I think you’ll find I was carrying on several simultaneous, rather ragged, conversations and only occasionally mashing them all together to form those non sequiter. These conversations have been about

1) whether markets are or are not fractal. I say not. Theory… ‘fractal - like’ does not fractal make. As above, so below – NOT!

2) that if we just loosen the definitions and get practical and realistic then we are in effect trading fractals. I posited if the ‘serious’ fractal traders aren’t really trading fractals, then no one else really is either. Interspersed in that conversation, I kept making the point that an ‘occasional fractal’ does not fractal make.

3) (closely related to 2)) that fractal in the name makes it really fractal. I say not. And the “F word” is still being used all over the place… the label is co – opted, corrupted… not quite sure why you were correcting me on this part.

 

re: “no need to loosen or tighten definitions” I agree. robertm asserted that some of us were way “over complicating” it. I was questioning his loosening the definition to just ‘repeating setups’. (see 2) above)

 

“Btw. no one has suggested 'everyone is trading fractals'”

True – no one really has. But in the ‘arguments’ between robertm and myself, it appeared to me that he was saying if we ‘simplified’ things enough, if we loosened the definitions enough, then we could all happily be trading fractals. Statements like “Markets are fractal in so far as we can see the same patterns (setups) repeating regardless of instrument and time frame, allowing for a singular system approach…” etc. I pushed both our arguments out to the extremes – everyone is ‘trading fractal’ vs ‘no one is trading fractal’ to make my points that occasionally fractal (repeating setup) do not a fractal market make, etc

 

re: “One of the few practical applications I can think of, that is quite accessible to the 'layman' is the polarised fractal efficiency indicator… It's an interesting concept.” Have you looked at the formula lately? Seems to me, while Larson’s idea may have been catalysed by Mendelbrot’s work, in real life it could have just been named ‘polarized efficiency indicator’ period… more co-opting of an obtuse ‘new’ word… more F word

 

And re: “Just because F word used to be used all over the place mainly to market dubious systems a whole bunch of other 'experts' just dismissed the whole discipline” If you will check back through my posts in this thread, I think you’ll find I have been saying the same thing. While a whole bunch of other 'experts' have just dismissed the whole discipline (mainly because it’s not their niche), if we could take an accurate poll I would bet the collective consensus is that markets are fractal. My conclusions that markets are not fractal are based on ~ 25 years of observation and trading of the ‘above’ and the ‘below’ and the ‘in betweens’ of representations of the market. They are not based or founded in math. I only offer these opinions as an alternative – not as ‘the’ truth.

[robertm 10]

Well I may be wrong but at least I'd still get the popular vote

 

Hang on, I think Bush used that theory............

[motorway 10]

If you measure

 

A coastline is measured with two different rulers. You can clearly see that the longer ruler will not measure the coastline as accurately as the smaller ruler. Because of this, the larger ruler will indicate a shorter length around the coast than the smaller ruler. Progressively shorter rulers will produce progressively greater distance. Theoretically this can be carried on indefinitely.

 

In an effort to find a relationship that he could quantify, Mandelbrot plotted the data on log-log charts. The outcome was a relationship between the length of the ruler and the length of the coastline that had a constant slope on the log-log chart. This relationship held up for any coastline. Because of his discovery, Mandelbrot was able to determine that the slope of the log-log chart was one minus the fractal dimension.

 

OK fine Let's do that with Stocks

 

Polarized Fractal Efficiency

 

Mov(If(C,>,Ref(C,-9),Sqr(Pwr(Roc(C,9,$),2) + Pwr(10,2)) /

Sum(Sqr(Pwr(Roc(C,1,$),2)+1),9),-

Sqr(Pwr(Roc(C,9,$),2) + Pwr(10,2)) /

Sum(Sqr(Pwr(Roc(C,1,$),2)+1),9))*100,5,E)

 

But He Didn't Did He

 

HE used a Clock instead of a Ruler

 

In Misbehaviour of Markets

What Does Mandelbrot Say about Time

 

imo Unless You use Intrinsic time

 

And use Rulers instead Clocks

Fractal does not mean as much as it should

 

 

What is a practical application ?

 

P&F charting

 

One fundamental problem in analysing financial

markets is that we’re working on the wrong scale,

the wrong time-scale. In other words, we interpret

that scale - the spatial, physical time-scale -

entirely wrongly. We haven’t got any intrinsic time!

So we have to find out what’s meant by the term

«intrinsic time» and how it should be used R Olsen.

 

So I see markets as Fractal when seen as they are in their Own Intrinsic Time.

 

We haven’t got any intrinsic time!

 

P&F chartists used it since ~ 1881

and soon realized that markets were Fractal

That altering Box Size ( Olsen's Directional Change Threshold --DC )

 

Did not change the Statistical Behaviour of the Charts...

 

That the mathematical laws governing the Unit Chart are Independent of the Size of The Unit adopted

~ 1926

 

That quote from an article in the Magazine of Wallstreet by John Durand

and Discussion is very similar to Richard Olsen's on Intrinsic Time..

 

Both are saying the Market is Fractal when viewed as it is...

Without the distortion of Time Frames" imo.

 

OK first Quote

 

Now take two P&F charts With different Box Sizes

 

And you have exactly the two rulers

 

Now just count the BOXES and

Go from there..

 

Richard Olsen: Intrinsic time is - to put it a bit

drastically - when you think about real life.

In our

normal lives, physical time is a foreign body.

 

Intrinsic time is subjective time, i.e. the individually

experienced speed of the flow of time. And it’s

clear that the flow of time is different for different

objects and circumstances.

 

In the case of our forecasting models we don’t

even consider physical time. And there lies the key

to the problem.

 

It’s important to measure time

according to different scales: in seconds, in

minutes, in hours, days or months.

 

And in intrinsic

time a minute sometimes has 60 seconds,

sometimes only 10, and sometimes 1,000

seconds. And if a minute has, for example, 1,000

seconds, it means on the one hand that we

experience that minute very intensively and vividly

- but on the other hand, time subjectively seems to

flow slower in that minute.

 

"It's the same concept that's behind point-and-figure charting, except we (try ) do it mathematically instead of visually, which is not an insignificant achievement."

 

 

Motorway

[BlowFish 10]

Hey Zdo I'd still be interested in how you think market data been generated by an auction precludes it from being a fractal? (I'd also be interested in how you define 'the auction'... the A word is as misused and over used as the F word imho )

 

Also worth repeating that the markets may well be fractal without being mathematical fractals (like coastlines). From a couple of things you said I guess you may well be talking about the latter.

 

Different terms of reference offer hamper understanding another point of view and I still am not sure exactly why you think the markets are not fractal.

[zdo 20]

BlowFish,

 

re “Hey Zdo I'd still be interested in how you think market data been generated by an auction precludes it from being a fractal?”

(…Preface - these answers may disappoint. you were notified… )

For years, I stayed attenuated to ‘finding’ them in the market data / tracks / representations. Didn’t find them – motorway and Edgar Peters notwithstanding. So, on a whim, I stepped up the context and started asking about finding them in the process – while acknowledging it was my limited local personal experience of the (A)auction. My ‘assertion’ several posts ago was that I did not find fractal in the actual Auction and I did not find it in the tracks left by the auction either. In the end, it was a realization that I would have to exclude too much of my wisdom to ‘make fractaling work’ – why do that?

 

re: I'd also be interested in how you define 'the auction'... the A word is as misused and over used as the F word imho "

“We could intellectually dissect any particular thing for 10,000 years and not arrive at the truth of experiencing that thing.”Ya Mu

I would also be interested in how I define 'the auction’ :doh:

Same for the Market (the M) word. Is the M word as misused and over used as A and F?

I trust my preverbal constructs of the A and the M enough to participate in them.

I trust yours too…

see Arthur Young Arthur M. Young: The Theory of Process etc

I do not trust my preverbal constructs of F enough to participate in them...

 

re: "Also worth repeating that the markets may well be fractal without being mathematical fractals (like coastlines). From a couple of things you said I guess you may well be talking about the latter."

Yes No Both, Maybe… A possible corollary to my previously posted snippets in bold? -

a ‘conceptual’ / non mathematical fractal does not a real fractal make . see questions at end…

 

re; “Different terms of reference offer hamper understanding another point of view and I still am not sure exactly why you think the markets are not fractal.”

But I do think fractals exist in the market.

and

But I understand that they don’t manifest in the market – at least for me.

I now find myself “standing ok“in the tension right in the middle of these two ‘ways’… not compelled to manipulate the structural conflicts btwn the two possibilities.

...However, I am now freakin scared to include vibration, association / harmonics, and cycles in this conversation…so I won’t

 

The questions I have today–

Are (your / our) fractals ‘of’ / ‘in’ the measurements ?

or

Are (your / our) fractals ‘of’ / ‘in’ the phenomena?

[zdo 20]

another way of phrasing the question

Without measurements would there be fractals?

[hyper_critical 10]

I just skimmed the thread to this point, because most if it wasn't worth reading. What's clear is many expressing their opinions, if they've picked up Misbehavior of Markets, let alone something from SSRI, they gave it a 5-minute skim TOPS looking for something that looked like a trading indicator and missed what couldn't have been much past chapter 2:

 

Markets are self-affine, NOT self-similar.

 

And that's all I have to say about that.