Fractal market, what is it? What does it mean? Hello family i am fully sure that you have heard many times that the markets are fractal, they really are, but many times we are not sure what it means.
FRACTAL MARKET, CONCEPT.
The term fractal comes from the Latin “fractus” and means fragmented or broken, it has its application to the set of forms that are generated equally at all scales, cannot be differentiated and therefore have a fractional dimension. Kadanoff, an American physicist specializing in chaos theory, said that a fractal contains copies of itself within itself. Fractal structures are made up of structures similar to the original figure that are repeated on different scales to the original figure.
Fractals are repetitive patterns on different scales, these scales can be physical or temporary.
We can find examples of fractals in nature, such as in rivers or in the leaves of some plants.
Fractals in nature.
The stock market arises from human behavior, our behavior is repetitive, therefore fractals are also part of the price history.
Financial markets are fractal, what do you mean? Simply that they behave the same in the different dimensions that we analyze. If we have a proven technical analysis-based strategy that works, it will work at the different timescales it is applied. If, for example, it works very well for us on a daily chart, it would also have to work well on a minute chart.
The tools we have for technical analysis can be used at any time and in any direction (bullish or bearish trends), therefore they tend to be fractal. Be careful, this is not always true, there are tools and ways of operating that do not meet these conditions, therefore they do not respect their principle of fractality and we should be suspicious. Let me say that if you use it to make money, go ahead, there is no problem.
In summary, if we have a strategy that works very well in 5 minutes and we apply it to 1 minute and it continues to work equally well, it means that it is governed by the principles of fractality, we will have to make the pertinent modifications, but that is a guarantee of being in the good way.
Strength in trends
A trend is strong for its angle of inclination, that angle tells us that the price is traveling quite a distance in a short time. But we can also find constant movements in the price but over time.
Accelerated strong trend / slow strong trend.
We can see that the progress of this last example is slow, and the candles have little volume, that is, little body. Both trends are strong, they show us price insistence for continuing on its way.
While with this other weak trend the price itself is counteracting the path, they are candles with little progress.
Examples are presented in specific trends, if your task is to look for examples in the opposite trend ??
When there is both a bullish and bearish trend either in a stock, cryptocurrency, commodity or in a currency pair, there are 2 moves which are the impulses and the retracements.
Impulses are movements in favor of the trend, for example when it is spoken of that an action has an uptrend, the impulses would be the movements of the price that are upward. The retracements unlike the impulses are movements against the trend, in this example of an action with an upward trend would be the movements that occur downward. Retracements are (corrective) movements that occur after an asset has risen sharply and the market has to correct before continuing the uptrend.
Experience shows that there are times when, despite taking prices in a sequence of higher and lower and higher and continue to climb little by little, there are certain unequivocal signs that predict an imminent change in the market.
The Trends should be characterized by having fast impulses and a lot of price, and slow retracements that move in relatively narrow ranges.
Retracements are breaks that make the Trends, and usually occur when Traders make profits by reaching impulses their Tarjet zones or levels of supports or resistances. These are movements in which the price, lacking the strength that neither buyers nor sellers print, remains relatively grounded without exceeding Highs in Bullish Trends or Lows in Downward Trends.
Impulses, on the contrary, being movements that are characterized by their strength and speed, should not draw channeled movements, nor any type of figures in general.
There are 2 fundamental characteristics to distinguish a Recoil from an Impulse:
1- The recoil is more (small) than the movement of the bone impulse that travels less price.
2- The recoil usually moves slower than the impulse (Many theories do not consider this second factor, but it is something to take into account)
Then we can see the following examples:
impulses and setbacks
We will talk about the general and secondary trends of the chart, we can notice that the price rarely moves in a constant and linear way.
Example General Bearish Trend and its secondary trends.
Constant and linear bearish movement.
Most of the time trends are made up of impulses and setbacks.
How can you notice the impulses are in favor of the general trend and the setbacks are against the general trend.
In order for the price to continue in the same direction, it is necessary to create highs and lows in the same direction.
Thanks for reading have a great day ??
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