Are stock charts fractal ? Not really...

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Are markets fractal in nature ? despite what you've been told, no...

The theory is that you can look at any bare chart without a timescale and not tell what the timescale is. While this is true from a graphical point of view there's quite a difference in what they indicate.

Trading is performed better with good statistical analysis, and as any Statistician will be at great pains to tell you - sample sizes matter, and the more the better.

Below is a tick chart showing a 1 minute period (red) and the equivalent candle you would see if you were trading on a 1 minute timeframe. The price opened, drop a few pips then recovered back to near entry, resulting in a pinbar/hammer candle.

tick1.jpg

I've highlighted blue dots to show exactly where the ticks were, around 8 total in that whole minute. What do you think that means for the validity of the candle ? Absolutely nothing, it's just random noise. There just isn't enough sample size to take a consensus of the stock direction.

Here's another tick chart, this time 1 hour. The price opened, fell a few ticks then rose towards the end producing a strong white candle.

tick2.jpg

This candle is made of approximately 200 ticks, a much bigger sample size. You can see that the general consensus overall was an uptrend, and the candle can be taken as more reliable.

To go back to my original point, charts may look the same on different timescales, but in actuality they differ widely in what they're showing. This is why the advice always given to new traders is to trade as long a timeframe as possible, because signals and patterns become more reliable the larger the data set they have to act on.

If you trade using indicators, you should note that most indicators were developed over 40 years ago to trade daily and weekly charts, even monthly. That's single candles with hundreds of thousands of ticks inside them. If after 2 million individual ticks the average direction of the price is up for example, then it's safe to assume that the trend is up !

If trading candles or signals on short timeframes, those periods might only contain a handfull of ticks, essentially just random noise. Or not enough to base reliable decisions on whether they form patterns or indications.

The upshot is, if you're trading short timeframes, try to use price action systems only, not candle patterns or technical indicators. I know it's difficult if you're just starting out and only have a small account, to make trades on longer timeframes. You may be risking more each trade but you'll find that your success rate is vastly improved.

Disclaimer : If you blindly act on the advice of strangers from the internet then you're an idiot and probably deserve to lose all your money. There's no fast track to success. Do your own research and make informed decisions based on all available evidence. Critical thinking is the key to everything.

Are stock charts fractal ? Not really... | Ecency