Well more thanks to you for coming in with what is clearly an informed perspective to initiate what would in the end be an interesting discussion. If you go to forexfactory now you find nearly the entire retail setup in open outcry as a result of the market reaction to FOMC releases yesterday. Let me use that to demonstrate how this thing works without being too precise (since even if I gave the matrix on which the market may be calculated to all here, there will still be doubts expressed so only money (returns from live trading) solves this thing). In the following post I discuss some of the points you raise here more directly. Now this outcry against market outcomes simply proves that all these years no one in the prop market has understood how price moves. It is not just traders (retail or otherwise) it is also pundits (from banks, the financial press, etc) and all others who lay claim to understanding how the markets work. Observe that as incredible as it is, everything is speculation in this business despite years of existence. For instance someone or a group of players got it right with the FMOC (by error or design). Price moved against the rest of you, so someone or a group (organized or not) took the other side. But even that is an unknown - who took the other side and why? So nearly all known theories about how the market works do not work. I have said it often that it is wrong to think the market is an economics laboratory set up to trade delta in economic variables. Ultimately the way the market is setup allows every participating entity to trade or satisfy it's understanding of the balance of forces at different points and the market simply aggregates all incomings to sign the flow (so whatever strategy you use is bound to be right sometimes even when there is just a single explanation or pattern for how the market works). That should explain why so-called fundamental analysis is no different really than reading the market by the phases of the moon. The true solution of course is adopting the precepts of chaos theory and fractal geometry where you calculate market direction and range by significant turn factors called iterates or spot pivots. The Euro for instance and by that method fell to 1,0340 and was iterated to the upside at that point across all market scales. To the left of TF (or the unit) this low was reiterated at 1,04935 and this was well before the FOMC. Therefore, even on a probabilistic basis the Euro was and is rising (given the scaled iteration and range in terms of space in direction). This pattern of iterations (related to scale) thus suggests a turning level (down) at 1, 11268 (the attractor level broadly speaking at which we recalculate the market). This of course suits the medium-term trader as a goal but the fluctuations to that point remain complex and unpredictable because it is a chaotic system we trade (and so there is no point in predicting the course of price even with our understanding of the sequence of iterations to date. We need to just follow the matrix of iterations). However, this view (of a rising Euro) is fundamentally supported by the flow type observed for the Euro across scales and that is the fact of persistent waves at the lead scales - very simple (and almost sure therefore of our casing of the market). Similarly, in Gold we see an upside from a low attained before the FOMC but the suggestion reading the market by chaos is that this is a needed reaction up on the scale to persist down in the current unitary phase. Why? Because for now the perturbations are clearly localized within the overall flow (current unitary phase) and do not appear strong enough to upset the sequence of iteration and reiteration at 1375.08 and 1263.82 respectively. So to near certainty Gold was always going down. But we do not depend on predictions to trade the market rather on a matrix that describes chaotic behavior in market space. This means of course that regardless of the important knowledge we have on especially Gold (since it will accelerate 1122.68 into a sustained down phase on a unitary level when it gets there) we trade the immediate sequence which is now at or nearly about its return line by our calculations. When the market is populated by entirely separate entities pursuing their self-interest we must depend on the market and the market alone to tell what is going on - and that is accurate only when the market is read by its fundamental structure which is chaotic and fractal in expression. In the following post I will address more directly your points above - this is just to show you (hopefully) that far from being the complexity you may think this is (or even that the suggested application is unfounded) my desire is to indicate that there is a pattern dictated by the very structures we explain in "the chaology of markets" that is simple to use and that reads this complexity into direction and range - though it needs some pretty expensive gear to deploy - gear which even I does not have yet but is arranging to get - which is why I am out here talking instead of showing by result that this is settled). In any case, as a mathematician. I hope you can see that I am not misleading the public in my assertions above and that the market is a nested system of pivots (iterates) that can always be depended on (when correctly ordered per scale) to show what the play is and that as such even when a trader is wrong initially the trader has enough information to quickly correct his/her position in the same flow to profit. CheersTeduh wrote:Thank you Darkdoji for your reply.
Although I like the insights from fractals and chaos as a mathematician, I haven't yet seen anything concrete for practical trading.
I respect Williams, and his "fractals" have some usefulness, but they have nothing to do fractals in Mathematics.
IFS are good for generating fractal objects (e g ferns, etc) but I doubt if the market is deterministic. By the way, the paper I mentioned before does not mention IFS.
Prof Didier Sornette is an expert on multifractals, I believe he is working on using multifractals to detect forthcoming market bubbles. This could be very useful.
Peters with his Fractal Market hypothesis (FMH) sees the market more like a stochastic process (not deterministic), but where the probability distributions are not normal. In FMH outliers are "normal".
These are my views.