Fractal Trail MN – H4 (what is really going on)
- MN the unitary time frame recorded a bounce off of the 20420 return line or pivot 07/2012. This reaction fully met mean reversion criteria; among other things the unitary frame was (and remains) in dynamic equilibrium or range under a bearish trend line which provides 95% confidence that price reaching either of two range extremes (negative or positive) will be promptly returned to range to trend to the opposite extreme. Price had diverged 2 Standard Deviations from unitary mean at the point of reversion (measured on the MRM 54 chaotic scale; one of a series of proprietary metrics for measuring volatility). The volatility span or range was not changed in size at the point of reversion (and has not changed since the reaction began) therefore ruling out price behavior different than what is to be expected in a ranging unitary market (e.g. price behavior such as in a flat unitary market or consolidation and a unitary market trending in "free" range). In other words the volatility span still measures approximately the same on our chaotic scale as before the event. In terms of momentum this reversion move is not constrained as a unit by any valid divergences either in the unitary or fractal frames to which price needs to correct except that in WK1 to which price is now correcting.
- Consistent with mean reversion theory and historical observations of price behavior in that context, the unitary time frame has recorded an upwardly mobile Euro since the said pivot reaching the first of 9 (-3) volatility envelopes in its path on our chaotic scale and closing with a positively signed price bar within it last month. This entry and close by a positively signed bar implies that initial momentum is uncompromised and the opening price action seen in the current monthly bar is fully explained or attributable to sequential corrections in lower dimensions or fractions of the unit to compensate for extremes reached within those time frames as a result of the “effort” required to move the unit into the first volatility envelope in the unitary chaotic scale (over 10,750 points or 1000 Pips from reversion pivot and hence the observed divergence in WK1 now in play). It is therefore reasonable (5% chance of error) to expect unitary equilibrium to be restored by any of three possible levels - 1.27936, 1.27540 and 1.27500 (or simply by the 1.27 handle).
- In terms of fractal expressions of unitary or MN dynamic we see a rectangular range in the weekly defined by return lines 1.31295 and 1.27936 and consisting of rows of price bars alternating in color within that stochastic space. The daily is in dynamic equilibrium (the exact same volatility structure as MN at this time and therefore should post similar behavior near term) with price “oscillating” within the range defined by the weekly and is currently in a down phase to the projected low of that range. It is therefore reasonable to project with (95%) confidence a resumption in the unitary trend or direction on reaction from the estimated low expressed in the fractal range mentioned. The idea of mean reversion and price behavior within it is self-contained and admits no speculation outside of known price behaviors within that structure and helps to not only focus the trader’s mind on price dynamic but reduce hesitancy in reading the market and making entry and exit decisions (especially for medium to long-term speculation).
- Immediate price action or dynamic is expected to remain bearish until unitary equilibrium and reaction or reversion from negative extremes in the fractal frames (in particular D1 and WK1) becomes evident. While H4 may appear oversold by the usual measures, on our chaotic scale there is still room to accommodate another 25 to 50 or so Pips of downside action without retrace in H4. It is important to consider that within a mean reverting framework and the fractal structure that defines the market – H4 may be the best chart frame to read the market for the expected reaction to the upside (and any failure of unitary trend resumption in the case of one). D1 may not provide the desired clarity for timing the reaction up compared to H4 - as the current dynamic is pretty immediate being isolated as it is to the current monthly bar (i.e. solely attributable to vertical fluctuations within it) and coming from the left side of the feed (- infinity) rather than the result of right hand (+ infinity) configurations e.g. unitary resistance, etc which configurations appear to be stable and as described above. In other words, looking at time frames larger than H4 may give clues too late for prompt detection and timing of tendency. In simple terms one expects a reaction from the estimated lows to entail zero or very little corrective play within H4.
PS: It is very important to note that what we are saying here is that the unit has not reached any unitary resistance at this time (trend is not stalled) – rather the lower scales or dimensions of the pair have exceeded upper limits within the associated reversion limits in the different fractal frames and need to correct to levels that will allow further buying to drive the unit up (this occurs sequentially on a LIFO (or FILO) basis). In other words, no point speculating about so-called “fundamentals” in making basic trade decisions (which frankly speaking is akin to reading the entrails of dead animals given the complex of intentions motivating buyers and sellers at any one time). Price moves in phases up and down whether going up or going down. But when the unit (as a whole i.e. MN) is moving up (or down) that is the trend until and unless it comes to some unitary resistance (support) and is reversed which in this case is still way up – all other time frames or fractions will obey its primary dictates or dynamic subject to reversion plays defined for their specific fractal dimensions which is non-integral on any scale. However, it is clear that were unitary trend to fail at this point - there would be sufficient indications from H4 patterns to signal such failure and hence the 1/20 chance of error in this assessment.
iscipline & patience Trader