Using Fractals to ID Trading Opportunities

Regardless of your analytical preference, you've gotta hand it to R.N. Elliott. Back in the 1930s, he discovered a set of recurring patterns in stocks – the market that was previously considered random. And if that's not impressive enough, consider that all his charting was painstakingly done by hand. No fancy charting packages. Just paper, pencil and a ticker machine.

One of the most interesting parts of Elliott's discovery was the recognition that the patterns he identified occurred at every timeframe. In other words, markets are fractal. That is, if you take a basic "5 waves up, 3 waves down" Elliott wave pattern and zoom in on the first up-down sequence, i.e. waves 1 and 2, you'll notice that it also forms a "5-up, 3-down." Zooming in again will reveal the same pattern on a smaller scale, just like this chart illustrates:




So, what does this mean for you as a trader? Well, for one, it means that when a pattern is completing on several timeframes at once, you'd better pay attention.