|
PureBytes Links
Trading Reference Links
|
Some of you have request more information about the chaos chart..
I am testing to see how chaos chart works with the swing chart. I am
not sure if it works.. The following statement/formula was given to me by a trader/friend..
"Let me give you some background, behind this system so that following it
might be a little easier, and at the end I will see how your swing fits in.
The system is based on the chaos theory, without getting to crazy , the
underlying premise is that a system ( I.e market, economy, biological system
etc) will evolve. This evolution will be stable as it grows. The
continuation of this growth will reach a point (this point is defined in
theory of chaos as a "fractal" and the definition of a fractal is that the
"fractal bar" has a higher high than the previous bar and this previous bar
also has a higher high than its previous bar, the fractal also needs the
same conditions for the next two bars . So the total fractal set-up is made
up out of five bars (same goes for the down fractal with lows)) , in which
the system become unstable and turns into chaos. Lets take this and apply it
to the market (FOREX).
When the system is stable ( I.e small trading range for a couple of hours,
that does not produce a new higher high or lower low). I have found that the
best time for this is the off-hours (3.00 PM EST - 2.00AM EST).
So the system is stable and the currencies are ranging between the fractals
( I use the current High and Low of the session.
Well now the question, something has to make the market move (change the
system), this could be cause by fundamental changes or technical changes it
really does not matter since the price within the system should reflect all
participants "perceived value" of the currency.
One other rule in the theory is that when a system goes into chaos it will
try to go back into its original state, but will NEVER get there and will be
changed for ever.
So the market is ranging between it previous high and low ( inside range),
so things happens that make all of us think that the current value is not
correct and the market starts going into a certain direction. It can do two
things.
1. not take out the previous high(or low) or it can "disturb the system and
"put" it into chaos.(I.e take out a low or high).The question is where is
the system going to stablize and put in the next fractal (high or low). Once
it does that how far does it "retrace" trying to go back into it original
state.
The following formula's go into a simple excel spreadsheet ( just put them
in and I will go over them)
IN A3 PUT "HIGH" (TYPE THE WORD)
IN B4 PUT "LOW"
A6 "R2"
A7 "R"
A8 "R1"
A9 "R"
A10 "P"
A11 "S"
A12 "S1"
A 13 "S"
A14 "S2"
INPUT THE FOLLOWING FORMULA'S
B6 SUM (B10-B12)+B8
B7 SUM(B8-B10)*1.25+B10
B8 SUM(B10*2)-B4
B9 SUM((B8-B10)*.75)+B10
B10 SUM (B3+B4)/2
B11 SUM(B4-B10)*.75+B10
B12 SUM(B10*2)-B3
B13 SUM((B4-B10)*1.25)+B10
B14 SUM(B10-B3)+B4
Ok that are the formula's, once entered just plug in the high and the low
and it will give you the levels.
If a previous level ( fractal defined by R1 and S1) is not taken out then it
will return to pivot (p)
If R1 or S1 is taken out it will go towards R or S (above R1 or below S1) if
not taken out it will fall back to R or S below R1 or above S1.
The easy way to visualise this is to get the levels from the spreadsheet and
draw these levels as lines on the chart and you will see how the market
follows this pattern.
I will stop here for now. let me know how you made out so far and then I
will tell you how I think the swing could confirm certain moves."
With Regards
Gary
|