Transient Harmonic Fractals

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ForJL
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Transient Harmonic Fractals

Post by ForJL » Tue Oct 12, 2021 11:08 pm

Over the years I have mentioned Transient Harmonic Fractals on this board many times but never really delved into the concept on any substantial level. Conditions in the market last week had me dealing with them quite a bit but didn’t have the time to do a post on anything. However time constraints have finally eased a bit so going to give that a shot at it now.

Okay, Transient Harmonic Fractals or THF … what are they? Essentially they are movements in the market that repeat in like duration and amplitude over x amount of iterations. Most traders consider these to be cycles within the market and to an extent they are. However real cycles within the market expand and contract to various degrees and are continuous though time. If you want to work with real market cycles I suggest the study of Hurst. He got many things right but in my opinion many things wrong also. Still, his work has great merit. So much so in fact that my own cyclical analysis approach is based on his work as its foundation.

THF most closely resembles the work of John Ehlers whom I once had the pleasure of speaking with many years ago. The man and his work are brilliant and another I would suggest that you study. THF’s can happen in just about any market condition but are especially prone to occurrence in trading ranges. In fact you will often find them within the trading range of a trading range of a higher degree. They can also occur in trending markets but are much harder to spot and can be “sloppy’ at times. My research has shown that they occur rather infrequently, less then 10% of the time, and on average have anywhere from 3 to 5 iterations. More are possible but you won’t see them often. Once the duration and amplitude pattern are broken the harmonic fractal pattern is over and hence the their transient nature.

So now lets turn to a THF pattern I traded last week on the 6th of October. My primary Natal Forecast was way off and went to a secondary model which I quite frankly didn’t like either. So I ended up watching both. The NF definitely had a THF bent to it but didn’t get interested until a little after 1000 or point C on the first chart. Amplitude and duration were not syncing up properly but thought this could be due to the “wobble” effect inherent in NF predictions. After the peak at point 1 I strongly suspected a THF in the making and tossed up a Lomb Periodogram. While I prefer maximum entropy or single spectrum analysis to hunt for THF's the Lomb is a very good alternative and something you won’t find in most trading programs. Points 2 and 3 are a bit shaky but near enough for me to believe a THF is about to happen. At 1130 I’m sitting chilly and get a beautiful 3 bar pattern (labeled a-b-c in black) and enter on the market at c bar. As price action unfolded I was able to catch solid portions of each wave with the exception of the one ending at point 8 where I was late in and early out ... never a good combination. I’m back in long after point 8 but I already have 3 iterations of the fractal so once the market blows past previous highs I change my approach as I am sure the THF pattern is now over.

In the second chart below we can look at this pattern in a different way using what I call True Value Energy or TVE. The TVE concept is another sub-theory of Energy Flow. While TVE can at times define an energy signature that is not it’s real purpose. What it is actually trying to do is catch points within the energy signature where the flow of energy is strongest at extreme. Think of the flame on your stove. It is controlled and burns evenly depending on how high you turn it. Energy acting on markets that produces a reaction does not flow so evenly. It is much more like a campfire with the way it burns dependent on the composition of the molecules within the wood itself and the environment it is in. What TVE attempts to do is capture energy extremes and eliminate movement that can be attributed to momentum. This is accomplished by simply drawing lines that have has many touch points as possible. Here I was looking for targets after the THF breakdown. All I did was draw a couple of TVE lines that defined energy max and energy min and measured with GS ratio's. There were two solid targets at 2.32 and 3.57. A more recent example of TVE in action comes form today’s trading. In this example I was looking at a wedge forming in the market and defined it by using 3 TVE lines. The interesting thing here was how they converged right on a signal from the Planet Rise Harmonic indicator. Once again I was sitting on this with plenty of time to spare and caught a nice move off a very sloppy open.

That's about it for now. As always hope some of you guys enjoyed it.

All the Best,
Joe
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ForJL
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Re: Transient Harmonic Fractals

Post by ForJL » Thu Oct 14, 2021 10:23 pm

I’m willing to bet that at least some of you shook your head in disbelief when I wrote that THF’s existed in trending markets the other day. However there was actually a good example right out of today’s trading. The market started trending upward yesterday around 1100 and continued this rally today. The question then became was there a THF that could help us in our trading today. To find these things you must have a reaction to a move in price followed by another reaction. Essential an a-b-c price pattern. If you find two like patterns in a row … two iterations you have possibly found a THF. What distinguishes a THF in a trending market from a trading range or bracketed market is where you get the reaction at point b. It ALWAYS comes later in the pattern, usually towards the end. You can see this clearly in the chart below. The trading range THF will generally come towards its middle though keep in mind almost nothing in trading is perfect and this is no exception. Oddly enough though trending THF’s tend to be a lot tighter then their bracket cousins. There is a reason for this but that's for another day. Today’s THF was fairly consistent at 14 bars (4 minute bars) or 56 minutes with reactions lasting between 2 to 5 bars … 8 to 20 minutes. By the 5th iteration we see that the reaction ended to quickly and the fractal pattern ended. You could I believe make the argument that things were already breaking down in the previous iteration.

So how do you trade these patters in a trending market? While I suppose there could be a few ways to exploit them to one’s advantage I simply use them as areas to add to existing positions. I will also use the c point completions as added input for stops. As for deficiencies the obvious one is their duration. They don’t last long so you end up dealing with limited opportunity. Most only last on average 3-5 iterations and you need at least 2 to make a potential identification which doesn’t leave a lot on the table. That said, even if you just get one correct it can make a big difference in your bottom line at the end of the day. Trust me on this because that’s just what happened to me today. ;-)


Joe

PS Almost forgot ... as you can see the Lomb was of no help today but that should be expected.
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Re: Transient Harmonic Fractals

Post by ForJL » Fri Oct 15, 2021 7:11 pm

Not a lot of interest in this one. Okay, lets try and liven things up a bit. While not the focus of the thread, if you want to experiment with the Planet Rise Harmonic indicator the way I use it try this. Make a new exchange and call it anything you like. Then make the coordinates 78.56/68.45. As for the indicator itself right now I am using error ... 20, and smoothing ... 8, but these inputs change over time. Also keep in mind this is but one variation and you will need to change it at some point.


Joe
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Re: Transient Harmonic Fractals

Post by ForJL » Thu Oct 21, 2021 6:01 pm

Toady we are going to look at something a bit different … a complex fractal pattern. As I was awaiting the markets open this morning and was setting up the Planet Rise Harmonic indicator my eye was immediately drawn a couple of fractals on the chart. They are marked 1a and 2a respectively. While amplitude of the first and third waves are different in relation to each other in their respective fractals, there are still similarities to the two. We see that that their overall lengths are almost the same … 34 bars compared to 32 bars … a 2 bar difference. Additionally the first two waves are equal to the last two waves and again they are very similar … 17 bars compared to 16 bars. The similarities of these two fractals had me acutely aware they could very well be part of a larger pattern that was working out in front of me in real time. That being the case I turn my attention to what occurred after the first fractal … 1a. We see that there was a rally phase that lasted 29 bars labeled 1b, followed by a decline that lasted 13 bars and labeled 2b. Thus, I am now looking for something like to happen after the 2a fractal ends and this is exactly what happened. As you can see the rally phase lasted 27 bars. At its conclusion I noticed something else … the second fractal was two bars shorter then the first and now the rally phase is two bars shorter then the first. Could it be the that the selling phase will be 2 bars shorter than the first? You guessed it, it sure was, and I got out almost perfectly.

If I had to guess there is a similar complex fractal pattern out there on a larger and/or smaller scale but not had the time to look for them. The discussion of how to find them is a subject unto itself and definitely one for another times perhaps. The main point here though is once you train your eye to see these things they can be very worthwhile endeavors.


Joe
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