Fractal Trading System

As many people believe that the markets are random; as Burton G. Malkiel in his book "A Random Walk Down Wall Street", who argues that throwing darts at a dartboard is likely to yield results similar to those achieved by a fund manager.

I believe that although prices may appear to be random, they do in fact follow a pattern in the form of trends; which I determine such trends is through the use of fractals.

Fractals essentially break down larger trends into extremely simple and predictable reversal patterns.

What exactly are Fractals?

Fractals in trading are not the same in mathematical sense, which refer to chaos theory and abstract mathematics.

While these concepts do apply to the market (it being a nonlinear, dynamic system), most traders refer to fractals in a more literal sense. That is, as recurring patterns that can predict reversals among larger, more chaotic price movements.

Why apply Chaos Theory to the markets?

In simple terms, chaos theory basically shows us that the markets are not as chaotic as they seem. There is an underlying structure and order that you can profit from when you know WHAT TO LOOK FOR.

How Fractals work:

A fractal pattern consists of five bars and is identified when the price meets the following characteristics:

1. A shift from a downtrend to  an uptrend  (bullish turning points) occurs when the lowest bar is located in the middle of the pattern and two bars with successively higher lows are positioned around it.

2. A shift from an uptrend to a downtrend (bearish turning points) occurs when the highest bar is located in the middle of the pattern and two bars with successively lower highs are positioned around it.

Fractal signals are most useful when used in conjunction with other technical indicators, such as Fibonacci retracement or various moving averages.

Contrarian Trading

Contrarian trading is different from contrarian thinking. Contrarian thinking is based on the premise that we should do the opposite of whatever the popular trend seems to be.

It means that contrary means always going against the majority - that a contrarian trading  is automatically acting in counterpoint to the current market trend. In a long bull market, this implies being like Cassandra, who made doleful predictions that were met with scorn, and while ultimately proved right, was never believed at the time. Similarly, on this view, contrarians bet against the common wisdom in the hope of making a killing.

Contrarian trading focus on detection of change in the trend of currency and of the overall market, that is, on detection of accumulation and distribution. Contrarian techniques prompt traders to buy sold-out issues very near solid support, usually before upward trends are broadly recognized.