Pushing the Envelope on Market Fractals Mandel_zoom_11_satellite_double_spiral Mother Market is a perverse lover, always trying to fool. As we begin to understand that Mother Market is a nonlinear chaotic system, we can appreciate that fooling the herd is her essential nature. Chaotic systems always seek order, and occasionally find it. When they find it, markets react crisply and quickly - think Flash Crash. As they seek it, they live on the edge of chaos and jink and jive precisely to fool their followers: as too many take a position on one side, the market will jink to the other. The whole field of technical analysis comes from the classical world of linear thinking: patterns that emerge and behave consistently. Markets are fractal in nature, and behave with a constantly shifting underlying order which we can barely discern if ever understand. The fractal nature of markets was first recognized by Mandelbrot (the picture is the visual representation of the fractal Mandelbrot Set), and initiated furtive investigations of fractal finance. The herd instead believes in the Random Walk theory and follows the Efficient Market Hypotheses. If the market is fractal, it is non-random and potentially predictable via technical analysis. The leading Elliott Wave practitioners recognized the fractal nature of wave patterns a decade ago, but have not pushed the theory into the world of Chaos Theory. Zoran Gayer was making strides in this direction when he unfortunately passed away. Hank Wernicki of Elliott Fractals is going where no one has gone before, constantly testing fractal patterns as predictors of future market moves. He posts often in comments to this site, and exposes his work in realtime for success and criticism. I deeply respect that process. One of the great improvements in human knowledge from the Internet is to treat the community as a test bed in itself. Companies are being launched today using rapid iteration from realtime feedback and deep analytics to figure out what customers respond to. Hank is pushing the envelope on the usefulness of market fractals by field testing his fractals as he goes, and improving their accuracy and predictability. Over the weekend Hank got endorsed by Bob Prechters EWT: Fractal analysis: After watching Henry (Hank) Wernicki for a year or so, I think he is onto something. Wernicki visually scans past short term patterns in the S&P for ones that look like “now,” and on that basis he attempts to forecast the market’s next move, usually a few hours or days ahead. When the market stops copying itself, his opinion is stopped out and he moves on to another picture. Hank makes bold calls, so if you are a day trader, you might want to check out his work. You can find him at elliottfractals. He tells me his site was overwhelmed Monday, so I held off a day to publish this. Everybody loves Hank! Kudos!
Posted on: Sat, 11 Oct 2014 14:17:06 +0000