[jasont]

I wanted to discuss this as it is something I have found to be used by just about every successful trader I have conversed with yet is something not extensively spoken about. At least I haven’t seen a solid thread about it thus far in TL so I thought I would get the ball rolling.

Obviously we all don’t trade the same so I welcome all the traders who use different time frames to post here (I know numerous from the forum) and explain their ideas about market fractals. I will start and get the ball rolling but I am actually more interested to see the diverse thoughts and beliefs on the topic.

For me trading market fractals is based upon ranges and breakouts. Majority of the time the market rises, forms a range, breaks out of the range and declines. It then forms another range, breaks out of the range and rises again. This is best understood by picturing waves in ones mind.

Of course there are times when the market reverses without a range but I don’t trade those so will leave it to someone else to talk about.

Why are different timeframes based on ranges and breakouts? This actually took me longer than it probably should have to figure out. At any one time when the market is ranging, it is breaking out of a different timeframe. The same is applied to any one time when the market is breaking out, it is ranging in a different timeframe.

I have posted a couple of examples below with annotations that should help understand this concept. The magnitude of importance of this concept managed to elude me for a long time because it wasn’t explained to me in black and white and was something I learnt through extensive screen time. Of course traders always said, “don’t trade with just one timeframe, keep an eye on numerous ones”. Heck if they had of told me that reversals are breakouts it would have made life much easier.

So going into further detail… Many successful traders advocate using at least 3 timeframes to trade from. Do I need to be so obvious to state a small, middle and larger timeframe? So why 3 and not 5 or 10? Well psychologically we tend to like things in 3’s but some traders might use more.

I personally use 5 timeframes and 2 different volume charts. Made up of 5 second, 1 minute, 5 minute, 15 minute and daily charts as well as 1000 volume and 50,000 volume charts. Are these timeframes better than others, no. They are just ones I like. I use a few more than others, some I just glance at a few times per day. Others I watch constantly.

Why is this important? Well at any one time the 15 minute chart could be ranging but the 5 minute chart is rising yet the 1 minute chart is falling. This sounds confusing if you think about them all at once doing this but it is thought of in comparison to their past movement.

So the 15 minute chart could be ranging within 15 points but the 5 minute chart is in an uptrend to the high of the 15 minute range. At the same time we are seeing a standard pullback in that 5 minute uptrend which is seen by the 1 minute chart falling.

New traders may be reading this scratching their heads just as I did prior to understanding the concept. I do suggest after reading this post and hopefully others in this thread, that you go dwell on this a little and let it sink in.

Let’s keep going with the above example. One could be trading all three scenarios at once if they were aware of them all. I don’t advocate doing such a thing but it is possible. One who isn’t aware of these scenarios is pretty much lost.

I say this because if one is trading the 1 minute chart decline, if they don’t realise they are in a 5 minute uptrend they may not look to take profits at the first sign of continuation of the 5 minute trend. The trader riding the 5 minute uptrend may not realize there is resistance at the 15 minute range high and not be ready to reverse his position should it be respected. At the same time he may not know to add to his position on a solid break of that range high.

Hopefully those new to this market fractals concept has had a light bulb go off in regards to reversals and breakouts. A reversal is in fact a breakout in a smaller time frame. Let’s say the 5 minute market has hit its high and stays there for 3 bars or 15 minutes. On a 1 minute chart the market has likely made a range at the high. A breakout to the downside on the 1 minute chart is not represented as a breakout on the 5 minute chart. In fact the last low could be 6 points away from the top yet the 1 minute range breakout could be 2.5 points from the top.

Therefore it doesn’t make sense when traders say you can’t trade breakouts in such and such market. Many traders say trading breakouts in the ES market is not a good strategy, well they probably just don’t realize they are most likely trading breakouts on a smaller time frame but don’t even realize it.

I made this post a bit longer than I expected but I do hope some other traders share their expertise in trading different time frames as it is a valuable concept for many to learn and understand.

[DbPhoenix]

Originally Posted by jasont »

A reversal is in fact a breakout in a smaller time frame.

Would appreciate clarification on this point as a reversal and a breakout are two entirely different things.

[stanlyd]

Originally Posted by DbPhoenix »

Would appreciate clarification on this point as a reversal and a breakout are two entirely different things.

I think what he means is that lets saya a reversal of a LARGER timeframe can be looked at also as a breakout in a smaller timeframe(if the smaller timeframe is in fact making lh's and ll's,then the larger timeframe reverses, then it makes the smaller timeframe "breakout" lower) if your looking at it as fractals. Makes sense?

great topic by the way.

[DbPhoenix]

Originally Posted by stanlyd »

I think what he means is that lets saya a reversal of a LARGER timeframe can be looked at also as a breakout in a smaller timeframe(if the smaller timeframe is in fact making lh's and ll's,then the larger timeframe reverses, then it makes the smaller timeframe "breakout" lower) if your looking at it as fractals. Makes sense?

great topic by the way.

That seemed to be what he meant, but that's not what a "breakout" is. As for "fractals", I know a lot of traders like to apply that word to the market, but I suspect they're using it incorrectly.

In any case, I don't want to derail the thread. If the definitions of "reversal" and "breakout" are not important to the subject, then set all this aside and carry on.

[stanlyd]

I agree, all these terms the terms are thrown around a lot. But more important then the meaning of the word is that one understands the point.I was saying in the chat the other day about having a hard time explaining "fractal nature of the markets"
It can get really hairy and we could start getting mathmatically complicated, but unless your into that(which I kinda am) that could be boring as well as confusing.
This being said I think having a general understanding of the point of fractals will help the timeframe discussion tremedously. So I tried to explain in a few times in terms of music that may help someone.

Lets say we are counting beats . Like put on any rock song and count it out. You should notice in rock music it's almost always a pattern of
1,2,3,4 2,2,3,4, 3,2,3,4 4,2,3,4

well what if we wants to zoom out (fractalish part) and count this using only the bold numbers above. So I take out the BOLD numbers from above and write them out and I again have 1,2,3,4. So if your still with me you can see that inside of the count of 1,2,3,4, we have severals patterns of 1,2,3,4
Make sense?
How is this in terms of trading. Well lets say a 15 minutes chart. We can think of it simply as 15 minute chart, or think of it as five 3 minute charts. (5*3=15)
So if your actually looking at targets and support/res levels say on the 15 minute chart, zoom in on your timeframe by switching to watch price in a 3 minute chart to help you navigate around the "noise".
Well anyway maybe this will help someone.

[Hlm]

Originally Posted by DbPhoenix »

As for "fractals", I know a lot of traders like to apply that word to the market, but I suspect they're using it incorrectly.

Well since that word will probably be used a lot, we should probably get that definition defined before going any further.

Some definitions from dictionary.com

a geometrical or physical structure having an irregular or fragmented shape at all scales of measurement between a greatest and smallest scale such that certain mathematical or physical properties of the structure, as the perimeter of a curve or the flow rate in a porous medium, behave as if the dimensions of the structure (fractal dimensions) are greater than the spatial dimensions.

a geometric pattern that is repeated at every scale and so cannot be represented by classical geometry

A complex geometric pattern exhibiting self-similarity in that small details of its structure viewed at any scale repeat elements of the overall pattern.

Contraction of “fractional dimension.” This is a term used by mathematicians to describe certain geometrical structures whose shape appears to be the same regardless of the level of magnification used to view them. A standard example is a seacoast, which looks roughly the same whether viewed from a satellite or an airplane, on foot, or under a magnifying glass. Many natural shapes approximate fractals, and they are widely used to produce images in television and movies.

How would you define it DbPhoenix?

[DbPhoenix]

Well, I don't see the market as being fractal since it's missing the self-similarity element. And I disagree that there is any such thing as "noise". But, as I said, all this may be entirely off-topic.

[atto]

My understanding of fractal markets is that technical analysis -- in the forms of MP, Wyckoff, "traditional" price patterns, etc -- are not time dependent. That is, a setup on a daily is valid as is on a 1m. Thus, someone not wanting to fight "the trend" may examine several timeframes to see how price is moving.

I've seen people use fractals as repeating / copying patterns (ie, self similar), but I wouldn't agree with that. My hunch is the previous posters' definition if consistent with my own (however misapplied).