1899 Dow Fractal Has Predictive PotentialThe Dow Jones Industrial Average tends to repeat itself in uncanny blocks of price movement. After years of research, I am convinced that all price patterns in the future have already taken place sometime in the past - albeit with different parameters.
The key to unlocking the value of fractals is to understand the general shape that links past sequences of price action with those unraveling in the present. It is difficult to "see" how price action from one period (usually from the past) can be transformed through time compression to yield a near-identical structure to an actual fractal happening today. This is understandable - there is no exact science underlying this already abstract method of price forecasting.
Yet, when you do find an actual fractal from the past, you'll know it when the relative time of each wave within the pattern matches proportionately with those of the non-compressed pattern of today. This is a complex idea, but to simplify things, you can use the fib-based timing tool to carve out portions of price action against each other. For example, you can see the background lines separate out on both charts and line up with each other when stacked.
For this example presented above, the pattern from the 1899 Dow is approximately twice as long as the one forecasted above from today's Dow. Thus, each wave within the entire sequence can be compressed by a factor of two, and distributed evenly throughout the chart. A more precise way would be to identify the parts of the fractal that differ slightly in form from the present fractal and attribute relatively more time to those portions. For example, while the first "three" of both patterns is an expanding triangle, the 1899 version is heavily skewed in one direction while the similar triangle is biased in the opposite direction. To keep this discussion brief, you could argue that the fractal differentiation might be attributed to monetary easing and is therefore a more bullish expression of price action than in similar times past.
Accordingly, one can also "compress" the price levels, which will be logarithmically related over time. Obviously, comparing apples-apples price levels from 1899 and today would completely debase any sort of analysis derived therein. Much simpler than time compression, one could simply right-click the y-axis in any tradingview chart and select the logarithmic button. From there, comparing 1800s price action to 2000s price action becomes a simple enough exercise.
Hope this explanation offers some insight into the abstract world of fractals and the methods used to derive value from them.
Feel free to post any fractals from the DJI that might fit better than the one I chose from 1899!
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