2009.02.25 TRO MULTIMETER FRACTAL DIMENSION

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TheRumpledOne
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2009.02.25 TRO MULTIMETER FRACTAL DIMENSION

Postby TheRumpledOne » Wed Feb 25, 2009 3:33 pm

2009.02.25 TRO MULTIMETER FRACTAL DIMENSIONS

Image

I created a multi meter for the FRACTAL DIMENSION indicator found in this thread. Green is trend could start and red is trend could end. Gray is no signal.

I also created a multi pair version that shows which way to trade and how long ago the signal triggered.

And I also created a digital multi meter version that displays the values.

FREE MT4 version of TRO MULTIMETER FRACTAL DIMENSIONS, including SOURCE CODE, attached.

The multipairs and digital multimeter version will be sent to those who donate to my PayPal account.
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Postby JESGPY » Sun Mar 01, 2009 6:52 pm

Interesting explanation and tips for Fractal Dimension.

http://transcripts.fxstreet.com/2005/05 ... mensi.html

TRO thanks for showing this aproach to the financial markets.

JUAN

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Postby TheRumpledOne » Mon Mar 02, 2009 3:44 pm

You're welcome, Juan.

Thank you for posting.

From that link you posted:

Trading with the FDI

Before explaining how to derive the FDI, I will first explain how to trade with it. The technique can be modified for individual traders, but there are some basics that you need to know. The FDI is useful because it determines the amount of market volatility. The easiest way to use this indicator is to understand that a value of 1.5 suggests the market is acting in a completely random fashion. As the market deviates from 1.5, the opportunity for earning profits is increased in proportion to the amount of deviation.

The entire scale is based on a range of 1 to 2, suggesting extreme linearity to extreme volatility. A great example that is often used to describe the fractal dimension is its use in geography. If you examine an island and plot the fractal dimension, you will be able to determine how jagged the edges of the island are for a particular measurement scale. An island with a 1.7 fractal dimension is highly jagged, with many more peaks and troughs on the periphery. An island with a fractal dimension of 1.3 is much more linear, approaching a single dimension or a straight line. If you examine this island on a map, the coastline will be straighter.

Applying the FDI to the market is similar to studying an island on a map. The price plot is analogous to the periphery of the island. The FDI indicator thus determines how close the price plot is to two dimensions (a plane) or one dimension (a line).

Because the price plot on your chart will never be one extreme or another, you need to measure the "fraction of the dimension." This is why the FDI number is a fractal dimension. The further away this dimension is from 1.5, the more confident you can be that the market is not random. When a market is not random, it is more predictable. If the FDI is closer 2, the probability is higher that the next move will be in the opposite direction of the current move. An FDI closer to 1 signals a trending market in one direction.

This knowledge alone gives the trader an incredible advantage, because it can indicate which markets have the most opportunity. If trading a basket of Forex markets, futures or stocks we certainly do not want to include those markets near a 1.5 FDI. If none are close to 1.5 we can still determine the market(s) with the largest degree of "predictability" by omitting those closer to 1.5.

Another point to make about the FDI is the amount of historical data necessary for accurate readings. This is debatable and varies between researchers. Feder recommends 2000 or more data points I personally use 2000 and then use the V-statistic and a correlation function to estimate the amount of forward looking memory in the analysis. I then only use the data from the 2000 that is relative to the immediate future forecast.

I recommend the following for the neophyte:

1) Use 2000 data points.

2) Determine your trading style. If you are a range trader, only trade markets with a higher FDI. If you are a breakout trader, only trade markets with a low FDI. If you trade both, only trade markets with a high or low FDI.

3) Never trade markets near a 1.5 FDI.

4) When I say low FDI or high it is not necessarily a specific number (although you can do this). As an example, you may trade a Forex market with an FDI of 1.38 and notice that in the last 1000 data points the FDI is never higher than 1.43. Obviously all markets trend and range. So you will have to look at your chart and determine what an acceptable trend range FDI is or range trade FDI for this specific market. Remember that the FDI is also measuring the dimensionality of the market. In general a certain market may be trendy, but it still has range trade regions.

5) The same logic in #4 above applies to selecting markets. If I am a breakout trader, I am not going to trade a market with an FDI of 1.38 if two others are 1.29 and 1.26.

6) Rate of Change in FDI. I have created oscillators that measure the rate of change in the FDI. These have been very useful for entry and exit signals. The movement of the FDI is useful in itself.
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Postby JESGPY » Mon Mar 02, 2009 3:53 pm

TRO.

Have you traded witt the FDI?

I you have.. How was it. Does it help? In what time frames did you use it?

I read the whole article and it seems usefull.

JUAN

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Postby Dracozny » Tue Mar 03, 2009 4:43 pm

i understand the FDI as you explained however the numbers in your TRO FDI indicators are completely different, bieng in the 30's 40's 50's 60's and red or green regardless of the number. can you please elaborate on that

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Postby TheRumpledOne » Tue Mar 03, 2009 5:23 pm

I just look at it... use it as a "reminder" that THINGS CHANGE.
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Postby TheRumpledOne » Tue Mar 03, 2009 5:25 pm

Dracozny wrote:i understand the FDI as you explained however the numbers in your TRO FDI indicators are completely different, bieng in the 30's 40's 50's 60's and red or green regardless of the number. can you please elaborate on that



Green means current value > previous value.

Red means current value < previous value.


Practically speaking, the most helpful thing about the fractal dimension is it gives us some idea what a chart is going
to do next. This comes from the key observation that markets move in a steady rhythm between trend and congestion.

Understanding and watching the progression of this rhythm, using the fractal dimension to quantify it,
can give us a good idea what a market is likely to do next.
If a market has been in a long period of congestion -- with a high reading on the fractal dimension --
then we can assume that the next major move will be a trend. We can also use the fractal dimension to recognize
when the market is "self-organizing" itself into a trend, which is the way a market evolves and
adapts to new energy (money) coming into or out of the system.
When the fractal dimension moves from high levels down through 55, we have a good idea that a trend is starting,
and that it will likely continue down towards the 30 area, where trends tend to lose energy and stop.

Conversely, when a trend has reached a fractal dimension reading of 30,
we have a pretty good idea that the trend has run its course,
and a consolidation or retracement is now about to unfold.
The fractal dimension readings then move up during congestion periods.

Of course, there are always exceptions and outliers, but those can be cataloged too.
A financial market always needs to be approached with the mindset that we can never know exactly what it will do,
but we can have a pretty good idea about how it will adapt and evolve, greatly increasing the likelihood of success.

READ THIS
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