A fractal, again, is a pattern or shape whose parts echo the whole. If you look
closely at the frond of a fern, for instance, you see it is made up of smaller fronds
that, in turn, consist of even-smaller leaf clusters. Of course, you can run such
thinking forwards as well as backwards; you can analyze the fern down into its
smaller parts, as well as synthesize the fern up from the smaller parts. Start with the
smallest leaf shoots as the fern unfolds from its bud; then watch as each shoot grows
and generates more shoots, which in turn grow and generate yet more shoots until
the fern is fully formed. Such is Nature’s method. Financial fractals can copy the
same trick: analyze, as well as synthesize.

In the set of diagrams preceding, you see our financial fractal begins with a box,
one unit wide by one unit tall (in our diagram, the width scale is stretched; but that
is just to make a prettier picture). Inside the box, we draw a straight line rising from
the bottom left corner, at coordinate (0,0), to the top right corner, at coordinate
(1,1). This is the underlying trend line—the assurance that our final chart will
eventually show a profit, no matter how much prices fluctuate along the way. If we
wanted to model a market drop, we could as easily do so by starting with a line that
falls from top left to bottom right. Then, you see a zigzag shape called generator that
fits over the straight line. It is in three parts, as shown: It rises, breaks downward at
a critical point, then breaks upward again. Exactly where it breaks and how
frequently is crucial to the outcome.