Stock Trading using Fractal Analytics

Many traders believe that Stock Market prices are strictly random in nature. Although prices appear to be random to the naked eye, they do in fact follow a distinct pattern, known as a trend. The key to trading successfully is being able to identify the trend from the outset. One way is through the use of "Fractal Geometry."

A fractal is a fragmented tree-like shape that can be split into parts, each part being a reduced-size copy (self-similar iteration) of the whole. Bottom line, a fractal is any figure whose individual parts resemble the whole. If you could use a camera with a zoom lense, each part would look exactly like the original, in all directions. As an example of Fractal Geometry, take a look at a fern leaf. Within the larger leaf are tiny leaves that have the same pattern as the larger, whole fern leaf. In this way, a fern leaf is a "self similar iteration". Snowflakes have a similar quality, with repeating patterns making up a larger snow flake.

Assuming that trends in trading behave in a self similar pattern iteration is what makes Fractal Analytics software work. Fractal Analytics identifies chart trends and determines intra-day support and resistance patterns by watching for iterations of self similar patterns. It was Bill Williams who first married Fractal Analytics to stock trading, by searching for iterative pattern formations.

Williams believed a buy opportunity to be a pattern of five consecutive bars where the highest high is preceded by two lower highs and then followed by two lower highs. Conversely, a sell opportunity pattern would be five consecutive bars when the lowest low is preceded by two high lows, followed by two higher lows.

What makes Fractal Geometry work so well identifying stock market patterns is that the charts themselves are fractals. Stock prices fluctuate with time, trending up and down. The identical patterns observed on a 1 minute chart can be observed on a 5 minute or 10 minute chart as well. Fractal Analytics primarily enables traders to observe such patterns as support, resistance, and overall Market trends. These are the key indicators for technical charts.

A seasoned stock market trader would be aware that technical patterns on 1-minute, 5-minute, or 10-minute intervals would be very similar to the patterns seen on a daily, weekly, or monthly chart for the same security. That is because stock price movements, themselves, are fractal. Stock market movement is a manifestation of individual traders reactions to a given set of conditions, regardless of whether it is on a 1 minute chart or a daily chart. A trader's decision making process is only as good as his universe of pattern recognition dictates. With Fractal Geometry applied to stock market charts, pattern recognition becomes easier. It makes no difference if the chart is a stock chart, ETF chart, or Futures contract chart. A technical analysis chart is a technical analysis chart. Nor does it make any difference if it is a 1 minute chart, a 5 minute chart, or even a daily chart.

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