FRACTAL - TIME - INFORMATION

TIME EATS THINGS

The world only

seems less fractal than it is because we operate

with physical time. But if we replace it by intrinsic

time, the world becomes much more fractal. R Olsen

After a period of decline in a bull market, a turning point from down trend to up

trend usually develops in the following manner:

1. The number of full figure changes dries up (lessens) on the declines.

2. The number of full figure changes increases on the rallies.

The ideal full fulcrum develops after a down trend has been halted and the price

path builds up a pattern which moves over in the trend channel from the lower

trend line to the upper trend line as a result of a series of rallies and declines.

This action builds up a congestion area with a flat base.

 From this series of minor rallies and declines,  which halt within a limited range

developing a flat base, a sharp quick rally occurs that may result either from

short covering or actual buying which creates the sharp run-up because of the

absence of offerings overhead. V de Villiers

The market organizes itself through a process which eliminates the periodic episodes of volatility which occur. The market makes order out of disorder. All markets repetitively follow a specific cycle of action. Starting from a period of efficiency, which is characterized by horizontal price development, a dynamic vertical move will initiate. The market now begins the task of establishing a vertical range of sufficient dimension to reign in and harness the energy powering the vertical inefficiency.

The force that accomplishes this is always present, always active, and always trying to gain control. This is the essence of market activity and the manifestation of the market's purpose-factoring out the inefficiencies which occur in order to establish a new efficiency. Periods of efficiency (horizontal activity) are the base from which the next vertical move develops. Inefficiency (vertical activity) emerges and eventually is eliminated leading to a new efficiency. The yardstick for measuring our progress in this repetitive cycle is relative vertical and horizontal dimensionality. As the market becomes less vertical, it is becoming more efficient. The market continuously communicates its condition in these horizontal and vertical relationships.

Having this understanding of the market's purpose as our foundation, our database needs to satisfy one criteria. It must allow the market to express itself freely in both the vertical and horizontal dimensions so as not to inhibit market expression as the market cycles through its purpose. Our database must allow free expression in the horizontal dimension. This is accomplished by indexing our database not to chronological time but to market time (efficiency to inefficiency and back to efficiency). Bar charts limit the ability of markets to communicate their condition because they are based on chronological time. The horizontal dimension is controlled by the clock or the calendar.

 It changes automatically. It is arbitrary to that degree. ................. the horizontal ( should ) only change when the market itself changes. A database must be  composed of data segments that are generated internally by the market as it pursues its purpose of establishing efficiency by factoring out inefficiency.  J. Peter Steidlmayer

Now Consider Changes in Market Condition

involve changes in the market's dimension

The change from Vertical to Horizontal and back to Vertical

The change to an UPTREND or to DOWNTREND

The markets Dimensions are Fractal and always changing

Consider===>

The Dimension of this chart = 0

We have a POINT

The market could come to a Point and simply Stop

The Dimension of this chart = 1

It is a Vertical line.

A Strong Vertical TREND

The Dimension of this chart = 2

It is a Mean Reverting Range

OK This One ?

It is NOT 0 , 1 or 2

It is a FRACTAL DIMENSION.

 A persistent price  series will result in a chart that is less jagged, resembling a straight line and subject to fewer reversals. An anti-persistent price series will result in a chart that is more jagged and prone to more reversals. The Fractal Dimension reveals whether a market is a random, independent system or a system with bias ( RANGE or TREND )

A  value of 1.5 suggests that the market is acting in a random fashion. As the value deviates from 1.5, the bias away from random  is increased in proportion to the amount of deviation form 1.5.

 An example can be seen in  the question of " How Long is the Coastline of Britain" . 

Applying Fractal Dimension to the market is similar to studying the above maps. The price plot is analogous to the coastline. The Fractal Dimension then is a computation of  how close the price series  is to two dimensions (a plane) or one dimension (a line).

 The price series will mostly never be one extreme or the other, It will be a  “fraction” of these dimensions. The further away this dimension is from 1.5  the more the price series  is non random.

 A fractal dimension closer to two reveals higher volatility and many changes in market Direction. A Fractal Dimension closer to one signals a trending market that is moving in one direction. (The above has been inspired by Erik Long )

 Fractal 

Now what of Time and Information ?

These relate to the interaction of Scale

==>

Here are Four Box Sizes 

Each is a Box Size Twice as large.

Here We Must understand TIME and INFORMATION

Fractal properties are a constant in a world of continuous change R Olsen

( Consider;  Change = Time )

All true things must change and only that which changes remains true C.G. Jung

To Understand Time and Information

We must Understand 

Market Heterogeneity

 

We overlay Our Coastline ( The coastline of Prices ) With BOXES of Different Sizes

( Similar to the Coastline  of Great Britain )

And :-)

To be Continued 

The world only

seems less fractal than it is because we operate

with physical time. But if we replace it by intrinsic

time, the world becomes much more fractal. R Olsen

TIME EATS THINGS

Motorway

GCN pt 40......APEX

Rising Supports

and Formed an Apex

Very Clear HERE !

Because of the fractal nature of markets, the impact of events cannot be determined by measuring just the absolute price move, but has to take into account aspects of the full price trajectory.  A straight price move  has  a smaller impact and significance  than a zigzagging price move of a equal size which occurs  within a same time period. A slower price move also has a smaller impact and significance  than a faster move of the same amplitude

Motorway

GCN pt 39 FRACTAL - TIME - INFORMATION

Remember these charts are Point and Figure Charts

They are Intrinsic Time Charts

They have Fractal Properties

.001 X 1

.002 X 1

.005 X 1

Below are some quotes from the significant work of Olsen ==>

Market participants fall into broad groups defined by their trading objectives, their appetite for risk and their trading time frames. Because a range of groups respond to events from a diversity of viewpoints and trading frequencies, patterns emerge. 

This market heterogeneity means that the impact of a news event is not immediately absorbed throughout the market, but rather is slowly dissipated over time. The initial market reaction to an event is followed by a series of secondary reactions in which participants react to each other's reactions. This process unfolds over the time frames of the various participants, slowly becoming weaker.

 "coarse volatility," measured at the longer interval, predicts "fine volatility," measured at the shorter interval, significantly better than the other way round. 

This is because short-term traders respond to the opportunities presented by periods of coarse volatility. They increase their trading thereby causing periods of fine volatility. Long-term traders, on the other hand, have no reason to respond to fine volatility. 

These findings add further weight to  "heterogeneous market hypothesis," demonstrating again that recognizing the diversity of market participants can open the door to new perspectives on market mechanisms.

Because of the fractal nature of markets, the impact of events cannot be determined by measuring just the absolute price move, but has to take into account aspects of the full price trajectory.  A straight price move  has  a smaller impact and significance  than a zigzagging price move of a equal size which occurs  within a same time period. A slower price move also has a smaller impact and significance  than a faster move of the same amplitude

Intrinsic time measures the actual market pulse and is  essential

Intrinsic time is a tool  to measure the true impact of fundamental events

The fractal properties of market prices provide a dynamic frame of reference with which to analyze in

Lack of  liquidity increases volatility

Political and economic events ( News ) create shock waves which can be analyzed with the study of Price fluctuations

Market events give rise to secondary reactions, because market participants trade on  different scales

The fluctuations are the foot prints of the complex interactions that determine relative asset prices

Market prices move in jumps, where physical time is a poor measure of significance.  Changes in fluctuations gives us early information 

It is important  to use  an event based measure of volatility 

Fractal properties are a constant in a world of continuous change

Also this from Edgar Peters

that the market, when it is healthy, actually has an infinite number of investment horizons. Which means that all investors look at information differently, depending on what their investment horizon is. 


At one end you have institutional investors like PanAgora, where we take a very long-range outlook on the markets, and the information we react to tends not to be very technical or short term so much as fundamental or longer term. The day traders, of course, are at the other end. Almost everything they do is tied to technical information. The rest of the market will typically use a little of each. Most financial planning clients would be somewhere between those extremes. 
When that happens, the market is diversifying its information set. The information that is relevant to the different groups is different. So, if there is a panic at the 15-minute investment horizon, then longer-term investors like us would actually step in and stabilize the market. We would consider that a buying opportunity, because things are deviating from long-range value. 


However  At certain times long-term investors will decide that their long-term information is no longer useful. It becomes unreliable. When that happens, then longer-term investors will also start trading on shorter-term information. In essence, their investment horizon shrinks to a shorter interval, and the investment horizon of the total market, rather than being diversified over a long continuum, becomes more uniform at the short end. 




What ends up happening in crashes—or exaggerated events—is that everybody is trading on the same information-set.
I find it interesting that this is essentially what the efficient-markets crowd says is happening all the time. But in the times when it actually does seem to be happening, the results are extremely unstable. 
When everyone is trading on the same information-set, then they are all following one another. The result is this extreme volatility and swings in the market. The market, in essence, loses its stability, because it is losing the fractal structure. 
The thing about fractals is that they have no characteristic scale. The deeper you go, the closer you look, the more you see exactly the same pattern that you saw in the larger frame of reference. In the marketplace, this characteristic scale is the investment horizon of the participants. As long as there is no characteristic scale, as long as everybody has a different investment horizon, the market is fractal and is resilient to unexpected information. 
However, when everyone has the same investment horizon, the market loses that resiliency. That's when you get panics and stampedes.

-----------

Ok The way to see these connections is to do

so GET CHARTING

You will note the above charts are approx related by a factor of TWO

Consider how this relates to FRACTAL

in terms of Time , Volume and Fluctuations ?

Consider in terms of how detail changes with resolution !

So do we have a BUY or SELL here ?

Motorway  

GCN pt 38 FRACTAL - TIME & INFORMATION

.001 X 1

 .002 X 1

 .005 X 1

Motorway

Scaling Laws

Time to Review ==>

http://enantiodromian.blogspot.com.au/2011/02/scaling-part-1.html 

http://enantiodromian.blogspot.com.au/2011/03/scaling-part-2.html

http://enantiodromian.blogspot.com.au/2011/01/point-and-figure-is-chart-not-method.html

Consider these before we go on and look at what the .001 and the .002 chart are revealing

Motorway

GCN pt 37 FRACTAL - TIME & INFORMATION

.001 X 3

.001 X 1

.002 X 1

 comments to follow :-)

Motorway

Intrinsic Time and Bayesian Learning

"Life Sequence"

 consider Your Charts and  Trading Decisions as such a Sequence

When reading this great quote=>


Brackets are My comments

"Here is all you need to know about Zen and the Tao. 

The Tao is algorithmically incompressible. To reproduce the information contained in a life sequence requires no less information than is contained in the sequence itself. There is no algorithm that is capable of reducing the information in a life sequence to a shorter statement. Each sequence is unique unto itself. 

This means you cannot predict which among many possible stochastic paths originating from this point in time and space your life will move onto. You can know something of the ensemble of paths and how your actions may condition the likelihoods of these paths. 

Your only moment of power is NOW, the moment when you can take actions that influence the distribution of future outcomes. You learn of the possibilities from your experience with no regrets and you make your choices in the Now with the knowledge that they do not determine the outcomes only the possible paths on which your life may evolve. 

Thus you do not fear the outcomes or attempt to control things you cannot. Nor can you rationally have regret.

Adopt a rational Bayesian decision framework and use evidence from your past to form expectations of the possibilities of the future and make choices that influence the distribution of possible outcomes in your favor. Never expect a distinct outcome to result from your actions. Your genes already do this (see Dr. Sejnowski's talk just a few posts ago) and your fast decision brain modules are better at decisions than all the calculations you can ever do. 

Don't look for (ultimate) causes. Complex systems don't have (Ultimate) causes. There are just patterns ( With Beginnings and Ends ) and at any point one's state of health can move randomly onto a new path. It is not the particular path that one should think about. You move over an ensemble of possible paths, conditional on how you live and the choices you make. All you can do is to try to influence the distribution of possibilities. You can never set the particular path or outcome that will be yours from this time forward. If you think you can look back and see some (ultimate) cause of events, you are probably suffering hindsight bias or what I call complexity blindness.

Think of the freedom this view gives you. There is no possibility of failure because you only control your actions and they only influence the probable evolution of your life over stochastic future paths. There is no failure, only feed back." Art de Vany

On Bayesian learning

(Now Consider The BOXES and COLUMNS on YOUR CHART as

The Marbles in the Bag.)

"The essence of the Bayesian approach is to provide a mathematical

rule explaining how you should change your existing beliefs in the

light of new evidence. In other words, it allows scientists to combine

new data with their existing knowledge or expertise.

 The canonical example is to imagine that a precocious newborn observes his

first sunset, and wonders whether the sun will rise again or not. He

assigns equal prior probabilities to both possible outcomes, and represents

this by placing one white and one black marble into a bag.

The following day, when the sun rises, the child places another white

marble in the bag. The probability that a marble plucked randomly

from the bag will be white (i.e., the child’s degree of belief in future

sunrises) has thus gone from a half to two-thirds. After sunrise the

next day, the child adds another white marble, and the probability

(and thus the degree of belief) goes from two-thirds to three-quarters.

And so on. Gradually, the initial belief that the sun is just as likely

as not to rise each morning is modified to become a near-certainty

that the sun will always rise." 


"In a Bayesian analysis, in other words, a set of observations should be seen as something that changes opinion, rather than as a means of determining ultimate truth."

In Praise of Bayes,The Economist

Now carefully consider correct application

We Must also separate out the changing seasons.

We must give careful consideration to our main task.

Which is NOT TREND FOLLOWING ( which will then be a GIVEN )

BUT DETERMINING ( Identifying ) 

THE TURNING POINTS

REGIME CHANGE

We must become aware of the Individual chapters

of the NON PERIODIC CYCLES of

ACCUMULATION MARKUP DISTRIBUTION and MARKDOWN.

These are INFORMATIONALY DRIVEN.

We are interested in BEHAVIOR and CHANGE of BEHAVIOR

FLUX not STEADY STATE

So beware of the trap of the AVERAGE

of the size of the window you are looking through.

You KNOW NOTHING unless you can determine the TURNING POINTS .


 There are just patterns 

There is no failure, only feed back 

observations should be seen as something that changes opinion

Motorway

GCN pt 36 FRACTAL - TIME & INFORMATION

One Box Reversal

whole of the Swing Down

Black Boxes = Day closes

One Box Reversal

Whole Swing Down

Purple Boxes are the Recent Daily Closes

But this chart has a BOX size of .002 instead of .001

Something Important Revealed here !

( Note --> A couple of days reside in the same BOX )

Same Chart as the FIRST

But focusing Just on the more recent action

 FRACTAL - TIME & INFORMATION

I have made many posts on these topics.

You will NOTE in the "some measure of trends"

There was a 1,3 & 5

 FRACTAL- TIME & INFORMATION 

relate to 2 , 4 & 6 etc

Have a Think

Fractals relate to pattern and resolutions

Time is Time esp DURATION ( Not tIME FRAMES )

There is important indication concerning TIME here .

Pattern ( Better Shape not PATTERN as IN TA PATTERNS ),

SHAPE  is revealing something here

SHAPE ( fractal ) + TIME are REVEALING something about INFORMATION.

Think of this

There is INFORMATION

THERE is the more or less INFORMED

There are LEADERS and LAGGARDS.

They BEHAVE differently.

"Uninformed traders tend  to follow their own type (herding), and they move to avoid informed traders. Intriguingly, uninformed traders refrain from entering the market after a day with many informed traders; in effect, the sheep remain in the barn" MAUREEN O’HARA

Consider => Uniformed Traders Vs Informed Traders

( Informed in the sense of KNOWING THE IMPORT OF SOMETHING )

in terms of changes in 

FRACTAL - TIME &  INFORMATION

Motorway

GCN pt 35 HOW TO READ A CHART continued

Think of a Bar Chart. Price on the Y axis and tIME FRAME on the X.

and it MOVES through TIME ( But HOW .. Think ! )

Think of a P&F Chart. An X and Y axis and it is MOVING Though TIME

BUT very differently ( How ?  THINK ! )

A Point and Figure Chart is THE FLOW of TIME ITSELF.

It is FLUID , IT FLOWS.

Think of what you see below ( as an exercise )  as the flow of willing supply.

Compare this flow to the flow of water.

Water will Seek out the lowest place.

The line of Least Resistance is always Down Hill.

But as it flows it can and does do work.

So too the flow of SUPPLY

It Builds POSITION

A TECHNICAL POSTION

Charts==>

One Box Reversal

Three Box Reversal

 

OK ==> Some measures of Trends: 

Thrusts 

Pressure 

Half-way-points

&

Trend lines 

OK Trend Lines

Which one would you use below?

Remember trend lines are a straight edge. A tool,  they are not the true trend and need to be placed skillfully to be useful.

Richard Wyckoff would warn us of the danger of using trend lines while at the same time recommending them as a tool.

As too De villiers and Alexander Wheelan.

They would say==> The TRUE TREND is the FLOW of the FLUCTUATIONS THEMSELVES.

It is the Fluid  Flow of SUPPLY itself  !

My Suggestion==>

Does it Highlight the Curvature of the TREND ?

The Behavior and change of behavior ?

Of that Flow of SUPPLY ?

The DOWN and ACROSS ?

Now !

Thrusts 

Pressure 

&

Half-way-points

I have marked the DOWN WAVES. (" When looking to go LONG "). On the Three Box Reversal.

(1) The Price movement — number of points advance or decline. ( this relates to the whole wave as well as individual columns 

(3) Comparative lifting power or pressure on each up and down swing ( this relates to how much new ground gained--> very revealing)

(5) half way points

 Some measures of Trends 

Motorway

GCN pt 34 HOW TO READ A CHART

This is the One Box Reversal

This is the Three Box Reversal

Consider

The Principle of Absorption !

&

The Measuring of Thrusts  ,  Halfway Points

And  Buying and Selling Pressure.

consider ==>HOW TO READ A CHART

more soon and on time as well.

Consider also

The relation between the Three and One Reversal Charts.

Motorway

GCN pt 33 TIME ---TIME -----TIME

Unless You Understand Time

You Understand NOTHING

I have Highlighted tIME with Black Boxes

They are the daily closes!

CONSIDER==>

from  Peter J Steidlmayer

COMPARE to ALEXANDER WHEELAN 

Organizing data is always the first step in analysis. Most technical traders organize market data in terms of time and price. Peter contends that this is not the way the market represents itself, and that traders would be better served to view market data as the market actually presents it. 

Peter examines market segments, or discrete market movements, in terms of value and development rather than price and time. To really understand the market, traders must allow the market to communicate freely. Any externally imposed structure will distort the results. Peter views chronological time as just such an external structure. Market movements do not conveniently begin and end at pre-calculated times in order to coincide with a particular chart or trading style. Market movements begin when some inefficiency between buyers and sellers exists. The movement ends when the market has attained its objective. Most technical analysis is based on the premise that the current price has already discounted all available information about the underlying instrument and so is “fair” at any given time. 

Peter explains why recent developments in the markets invalidate this assumption — price at any given moment no longer represents value at that moment. Inefficiency generates market movement. In Peter’s terms, such movement begins with a dominant force that then drives the movement to some result or output (price). The end of any given market segment is, by definition, the beginning of another. Determining how, when, and under what circumstances a market segment ends is the beginning of market evaluation. 

The concept of efficiency is critical to Peter’s methodology. It is, essentially, that state in which the buyers and sellers agree on the value of an underlying instrument. Peter explains the concept of dynamic efficiency, in which the markets are always moving from imbalance to balance. Peter believes that, ultimately, questions raised by the market can only be answered through active participation in the markets. 

According to Peter, the market “ . . has a well-defined underlying process that can be understood and recognized and that process has a natural progression that can be seen and measured. It has reference points which, when identified, represent important information, and it produces a final output which accomplishes the market’s purpose. The process is cyclical: it reaches closure and  and then starts over again.”

Very Good BUT

What He calls Value is really a Difference of Opinion .

Consider  EVERY BOX =  A difference of Opinion.

A trend is sequentially Higher or Lower 

Zones  of DIFFERENCES OF OPINION !

As to the Chart ===> ABSORPTION

A  ( another ) PRIMARY BUY POINT !

consider carefully 

Unless You Understand Time

You Understand NOTHING

Motorway