beathespread

От 08 ноември 2011

This is the fractal scalper I was talking about. It is from the same family as the Entropy scalper but here we are using the fractal dimension of the time series to decide to enter or not in a trade.

Basic principle: detecting pockets of predictability using fractal dimension treshholds and taking a directionnal signal

How to detect a pocket of predictability?

The basic principle is the same we are looking for a pocket of predictability. The mechanism is straightforward. We are looking what is going on for the last 2 consequtive bars. a3 and a4 parameter.

So we are interested what was going on the two bars before (a3) and one bar before (a4). Those values needed to be below an iVAR treshhold in order to take the signal. Here I use the iVAR (because I was told that it was easier to implement in an EA, but the code is ready so you can replace it by FGDI). In this example I use treshhold of 0.4. So we are in a low fractal dimension 2 bars before and 1 bar before. And we open a trade at the current bar. Yes it is a little bit late but I wanted to scalp a little bit when a probability of a directionnal movement is strong enough, and that time delay would give enough time of the directionnal indicator to give the correct direction. 

How we take a directionnal signal?

When we are in such a pocket we are going to take a directionnal signal. The directionnal signal is from the PFE (Polarysed fractal efficiency indicator). However I do not use the original but a mod of it with filtering. The Fractal efficiency is calculated like in KAMA, Kaufman’s Adaptive Moving Average efficiency ratio, plus polarization and with optional exponential moving average.

What about money management?

The money management model for the example is 15 pips target, 15 pips stop loss. Mainly I wanted to have this expert for hypothesis testing. I wanted to test if the fractal break - out pattern really exist. And yes that is a valid pattern but the things are not easy because you need to optimize the treshholds.

How the market state analysis will help?

However it has two values.

1. When the market state is good, like from the beginning of this January 2012, this expert is handling very well those kind of market conditions.  Quiet and trending, Volatile and trending.

2. It keeps you out from ranging market (quiet and ranging).

The danger would come (theortically) from Ranging and volatile market conditions.

(However a lot depend how you will set - up the treshhold filter, making it more or less permissive, if you make it very permissive you will make more money when there are clear directionnal impulses but less money when the market is turning to ranging periods)

There is one more thing. There is a possibility to setup a time filter. That is very important because you can set and test and trade only when there are predictied daily periods of high volatility.