We talk a lot about fractals here. In fact, we like the principle of fractals so much we created our trading strategy around them. Rich Clifford, our founder and MD, even named our family of companies with variations on the theme… fractal SA, fractalerts, fractalgo and fractalternative.
With that in mind, we thought it was a good time to sit back and take another look at these amazing and intricate patterns, which provide meaning to our trading approach and add color to our day.
We aren’t going to give our secrets away here, but once you know what to do with fractals, they can present an easy way to remove some risk from your strategy
Fractals, in their truest sense, are geometric shapes and curves, that when broken down into smaller parts, still exhibit the same characteristic as the larger version. That’s a pretty convoluted way of explaining it, so let’s think about examples you will already be familiar with.
Romanesco broccoli is the best example. Next time you are at the store or farmer’s market, take a look at the vegetable as a whole. As you look you’ll see that there are infinitely repeating geometric shapes… the florets of broccoli repeat into smaller and smaller versions of themselves, whilst always maintaining the same characteristics.
And it isn’t just about broccoli. Snowflakes, mountains, coastline, salt flats, ferns, leaves, and even lightening all exhibit some characteristics of fractal patterns – although with the latter you’ll blink and miss it.
Okay, granted, your paper money doesn’t feature any fractals (unless you live in New Zealand), but the markets that you trade on do feature fractals. We get that this is a pretty abstract thought, but hear us out.
If you look at the historic data of the financial markets, you are able to find infinitely repeating patterns amongst the figures. Those can be used, like we do, to inform your future trades, but finding them isn’t that simple.
Computing power means that the processing speed is getting faster, but simply trolling through the results of the financial markets (which is the case of the S&P goes back to 1957), means that you have a considerably amount of data to mine.
But it is absolutely worth it… fractals can give direction to your trading, as well as helping you find patterns in your portfolio. Without it, we’d wouldn’t have an industry leading algo on our hands.
There is nothing stopping you hunting for fractals in the financial markets. In fact once you start looking for them in nature, architecture or numbers, it is pretty hard to not see them.
But if you are looking for fractals in financial data, the sheer quantity of numbers and charts that you’ll have to sift through in order to find them can be a little daunting. And then once you have them, well, you need to know what to do with them.
We aren’t going to give our secrets away here, but once you know what to do with fractals, they can present an easy way to remove some risk from your strategy. When a fractal appears, disappears or shifts, you can interpret that into your approach, and hopefully reap the results.
But whether you choose to follow a fractal based trading approach or not, one thing you should do is take a look at the amazing abundance of fractals in your world. You never know, spotting one may lead you on an incredible journey like it did for Rich who, as the company legend goes, was walking along the beach watching fractals form in the surf when he came to the decision to start fractal SA.