MARKET ANALYSISBASED ON FRACTAL THEORY

INTRODUCTION

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FRACTALS

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Roots of mathematical interest on fractals can be traced back to the late 19th century, the term however was coined by Benoît Mandelbrot in 1975 and was derived from the Latin fractus meaning "broken" or "fractured."

FRACTALS

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Fractal is a geometric form that can be split into parts each of which will be a copy of the whole:

Fractals are everywhere in the nature: trees, human bodies,stars, galaxies and, of course, markets!

CHAOS AND ORDER

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Molecules move chaotically during water condensation. However, result is far from being chaotic:

MARKET

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Market is an organized structure too, built from enormous amount of information, chaos…

Still, it is possible to forecast!

QUOTE

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“Geometry that describes shapes of shorelines and galaxy models, also explains very well stock price ups and downs”. Mandelbrot

MARKET FRACTALS

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Rates are not just chaotic, there are certain patterns which are not visible to inexperienced traders

MARKET FRACTALS

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ELLIOTT WAVES

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The Elliott wave principle is a form of technical analysis that attempts to forecast trends in the financial markets and other collective activities. It is named after Ralph Nelson Elliott (1871–1948), an accountant who developed the concept in the 1930s.

ELLIOTT WAVES

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Elliott wave consists of:5 waves forming the dominant trend (1, 2, 3, 4, 5);3 waves forming the corrective trend (A, B, C).

ELLIOTT WAVES

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Let’s interpret this chart as a set of Elliott Waves:

Every pattern of an Elliott Wave consists of five waves

RANDOM VARIABLES

13Random variable graph of Weierstrass-Mandelbrot

Weierstrass-Mandelbrot GRAPH

14b = 1.5 D = 1.5 b = 1.5 D = 1.7

FOREX CHARTS

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FOREX CHARTS

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FOREX CHARTS

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FOREX CHARTS

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FOREX CHARTS

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OUTCOMES

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Traders can use fractal features of the market to:- Find cycles for different time intervals for different

currency pairs;- Get a good image of the market, understanding what

stage the market is currently in;- Understand market without fundamental analysis or

economical knowledge;- Make chaotic movements of the market understandable

and “forecastable”;- Forget about old fashion technical analysis after

implementing fractal theory together with wave theory (EWA).

EXAMPLE: STEP 1

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You see a 5-wave pattern – it means corrective trend is coming soon.That’s a signal for opening an order in opposite direction!

EXAMPLE: STEP 2

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Then you should forecast next 3-wave pattern using Fibonacci levelsNormally, correction reaches 61.8% of the previous level

EXAMPLE: STEP 3

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Market is continuing to form – new impulse is created. One should count created waves – there must be 5.

EXAMPLE: STEP 4

24One should wait for the end of 3-wave corrective trend. In our case it stopped at 38.2% of fibo level. At the end of this cycle – close all orders.

CONCLUSIONS

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Of course, this example is not comprehensive, but still gives a good picture of fractal theory application to trading.

Daily market analyses are available on our websites:

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