Forex fractal analysis. The main properties of fractals
For some reason, fractal analysis (FA) is not very popular among Forex traders. But fractals are found everywhere, being a reflection of single cosmic laws. This is true for financial markets, where the fractal has already proven its effectiveness.
The fractals discovered by Benoit Mandelbrot are widely used in technical analysis to predict the future market situation. Interestingly, many things and phenomena of the real, physical world are also fractal. This term literally means that small repeats large and vice versa. Fractals are self-similar (self-repeating), but irregular structures. In other words, each part of the fractal is a small copy of the whole.
One fine day, B. Mandelbrot began to study the fluctuation of prices on the stock exchange. And it turned out that the nature of these oscillations is by no means arbitrary, but cannot be described by standard curves. Continuing the study of statistics on changes in cotton prices over the course of 100 years, Mandelbrot made a discovery confirming the symmetry of short-term and long-term price fluctuations.
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Examples of fractals can be found everywhere: these are the outlines of the mountains, the circulatory and lymphatic systems of a person, the line of the seashore, a tree with its branches, waves, tornadoes, galaxies, etc. Sometimes you can observe changing fractals - they appear in a flickering flame or moving clouds. Fractals are nonlinear systems that have several solutions (interpretations). It is the fractal theory that studies the laws of the formation of such random phenomena.
The term “fractal” itself comes from the words Fractus and Frangere (break, break), which means the creation of fragments of irregular shape. The market is an ideal figure consisting of dimensions. Long-term price movements are not accidental, for example, you can trade in plus on the daily or weekly charts, following the trend. That is why it is efficient to search for key points on a chart using fractal analysis, in which indicators and mechanistic systems are not involved. FA does not fit the classical classification of technical analysis methods, which is the reason for its rare use in trading.
Let's look at 2 main properties of fractals.
The main properties of phratals
It is easy enough to confirm the presence of this property: sometimes price fluctuations are so volatile and show such sharp changes that many traders are confused. Fractal analysis answers the question “Why is this happening?”
Fractals as objects are self-similar. This is called a recursive model. In this case, the scale does not characterize the object, that is, it is difficult for us to distinguish between the source and any part of the object. It turns out that objects can scale indefinitely.
Fractal Trading Systems (FTS)
The FTS does not have TS flaws based on delayed moving averages or other similar indicators. Fractals give a specific entry point - this is the previous fractal. FA allows you to easily determine the ratio of risk and potential profit.
In other words, a fractal is a market reversal pattern that repeats over and over at different time intervals of the chart. To determine this model, you need 5 or more bars (candles). The average candlestick has a maximum or minimum value when compared with other candles. Candles having the same Max or Min values are excluded from the calculation, which forms the fractal model up or down. The essence of FA is to search specifically for a fractal on the price chart, which (fractal) determines the turning market points, and the trader trades in the direction of breaking the signal from the fractal model. Waves on the chart are such fractal patterns.
For profitable trading in the FA you need:
be able to highlight the fractal on the price chart.
learn how to break the cycle into waves with their subsequent classification.
using the Fibonacci grid, determine the most likely levels of support and resistance.
monitor the development of the initial conditions of price development.
Create and configure a filter using indicators that you understand.
trade according to the strict observance of money management.
Fractal analysis is universal. It can be used effectively in any markets. The main thing is to understand the essence and practice a practical skill.