Friday, December 24, 2010


Fractalicious reports on a new analytical set that I'm working with. It is based on the tried-and-true Person's Proprietary Signal (pps) and its association Person's Pivots. The difference is in the confirming signal. It is called the polarized fractal efficiency signal.

This is a relatively new technical tool, based on fractal math. Investopedia has only a cursory explanation. Wikipedia is silent on the subject. ThinkOrSwim has a fuller explanation.

See the Analytical Tools section, below, for a description of the signals, and the Trading Rules section for my first stab at trying to use this analytical combo.

    Greatest Potential
  • Bull: EEM, IYR.
  • Bear: None.
  • To bull phase: None.
  • To bear phase: None.

Top-Volume ETFs
Volume sort as of Dec. 23, 2010
My holdings are marked with as asterisk (*).
ppspfe trendpfe loctarget
SPY* $28.20
XLF $16.06
EEM $47.02
IWM $79.02
QQQQ $55.14
UNG $5.09
FXI $41.26
SLV $28.61
EFA $56.98
VWO $46.75
GLD $130.41
EWJ $10.95
EWT $14.49
GDX $57.35
EWZ $73.49
TLT $94.69
XRT $48.58
IYR $55.05
UUP $23.54
XLE $67.76
USO $39.56
XLI $35.02
XLB $38.15
GDXJ $36.44
DIA $115.96

The list shows the top 25 exchange-traded funds in descending order by volume. It exludes short funds and ultra funds.

Analytical Tools

The analysis uses the daily Person's Proprietary Signal (pps), developed by John Person, and the weekly Person's Pivot, which he also developed.

These are black box signals -- the "proprietary" means that Mr. Person knows how they work under the hood, and I don't. But they have shown a fair degree of success in identifying good entry and exit points, and I find them useful.

For confirmation, the analysis uses an indicator called the polarized fractal efficiency (pfe) technical tool. It uses the fractal math of Benoit Mandelbrot to measure how efficiently prices move between levels. The higher the efficiency, the more directional the price trend.

The math for the pfe is public knowledge, but it is well above my math knowledge, and so to me is also a black-box signal.

The analysis above is based on a daily chart using weekly pivot levels for the targets.

Trading Rules

These rules are very preliminary. I’m still trying to figure out how the polarized fractal efficiency signal works.

When Person’s Proprietary Signal (pps) is in bull phase, enter when the polarized fractal efficiency (pfe) turns to an uptrend (pfe trend). A pps signal and pfe uptrend have less strength but greater upside potential when the pfe location (pfe loc) is below -50, and greater strength but less upside potential when the pfe location is above +50.

When the pps in in bear phase, enter when the pfe trend turns down. The set up has less strength but greater downside potential when the pfe loc is above +50, and greater strength but less downside potential when the pfe loc is below -50.

The target is the weekly Person’s Pivot level in the direction of the trend, determined by the pps.

The question is how to treat the pfe when it has flatlined at the top of its range, above 100. My preliminary observations are that the price by then has had a large upward run and tends to present a picture of exhaustion. However, by the description of the pfe, a high level should indicate a continued strong trend.

This is something that i’ll figure out as I go along.

Key to the tables
pps bull phase
bear phase
pfe trend uptrend
no trend
pfe loc above +50
-50 to +50
below -50

Key to the funds
SPY - S&P 500
XLF - Finance
EEM - Emerging markets
IWM - Russell 2000
QQQQ - Nasdaq 100
UNG - Natural gas
FXI - China 25
SLV - Silver
VWO - Emerging markets
GLD - Gold
EWJ - Japan index
EWT - Taiwan index
GDX - Gold miners
EWZ - Brazil index
TLT - 20+ year Treasuries
XRT - Retail
IYR - Real estate
UUP - Dollar index
XLE - Energy
USO - Crude oil
XLI - Industrial
XLB - Materials
GDXJ - Junior gold miners
DIA - Dow Jones Industrrials

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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