Fractal set-up

Below is a chart set-up from The Master Fractal Trader. The premise of this trading theory is that certain market patterns are fractals of prior patterns, sometimes larger patterns, sometimes smaller patterns. By monitoring underlying prices via charts, those prior patterns start emerging in current patterns and when prices finally fulfill the entire prior pattern, the resolution of that prior pattern will also be the resolution of the current pattern.

In Elliott terms, if the pattern of the end of a previous directional wave is being repeated currently, we can expect the end of the current directional wave so long as as there is confirmation in price action. Maybe its best explained with a current chart from ElliottFractals.com:



The fractal is labeled on this chart as f1-f7. The idea is that once prices reach f6 and turn down, the high probability trade is to short the market, expecting prices to repeat the action following the previous f6 TOP. In this example, the "CHILD" fractal is being duplicated by the "PARENT" fractal, so expectations would be for a commensurately larger decline between f6 and f7.

This is a current fractal set-up for the Nasdaq Composite Index. The High Friday in this index was 2012.33. and closed the day at 2000.25. Superimposing that price action on the above chart (from last Thursday's close) suggests that the decline from f6 to f7 may have begun. If so, expectations based on the previous "CHILD" fractal would be for this "PARENT" fractal to decline below f3, or to about 1575 on the Nasdaq Composite. That would be about a 25% decline.

Does this kind of analysis work? The web site claims about 75% accuracy. My experience with the service is consisitent with this claim of accuracy, about 3 out of 4 set-ups work. This kind of analysis can be very complementary to a trend-following model, in that it alerts the trader to times where trends may be highly likely to reverse.

As the service suggests on their front page:

Are You Feeling Hopeless With the Stock Market ?


The Market Rules are Changing !


Are You Prepared ?


Maybe It's Time To Do Something Different

I have no interest in this service, it's not even an advertiser on my Blog (though if you're reading this Hank, you are welcome to advertise here, my seal of approval). I am highlighting this particular fractal because it comes at a time where my expectations are very high for a major reversal in the markets.

In other words, 25% may very well be at the lower end of what's coming down the pike.


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