Tuesday, January 18, 2011

1/18 Forex

New analytical method. Read the explainer below and also the backtesting upon which it is based.

  • EUR/USD moves from bear phase to neutrality.
  • USD/JPY moves to neutrality, but the confirmation is ghosting and the pair may technically remain in bull phase.
  • USD/CHF moves from bull phase to neutrality.

phase pfeppstrend

Table Abbreviations:
  • pfe - Location of the polarized fractal efficiency line.
  • pps - Person's Proprietary Signal mode.
  • trend - Trend of the polarized fractal efficiency line.

Key to the PPS/PFE tables
phase bull phase
bear phase
pfe +100 and above
+50 to below 100
0 to below +50
below 0 to above -50
-50 to above -100
below -100
pps bull confirmation
bear confirmation
trend uptrend
no trend

PFE/PPS Analytical Tools

The analysis uses an indicator called the polarized fractal efficiency (pfe) technical tool. It employs the fractal math of Benoit Mandelbrot to measure how efficiently 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.

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.

For confirmation, the analysis uses the daily Person's Proprietary Signal (pps), developed by John Person.

This is a black box signals -- the "proprietary" means that Mr. Person knows how it works under the hood, and I don't. But it has shown a fair degree of success in identifying good entry and exit points, and I find it useful.

PFE/PPS Trading Rules

The polarized fractal efficiency line (pfe) provides the phase change signals (bull or bear), and the Person’s Proprietary Signal (pps) either confirms the change or not.

The pfe trend shows which direction the pfe line is moving and so suggests the likelihood of phase change in the near term.

For this analysis the pfe chart is divided into three sections: Above +50 is bull territory, below -50 is bear territory, and anything in between is neutrality.

Confirmed bull phase means the pfe has risen beyond the +50 line and the pps is in bull mode. The phase ends when the pfe crosses the +50 line into neutrality and the pps moves to bear mode.

Confirmed bear phase means the pfe has fallen beyond the -50 line and the pps is in bear mode. The phase ends when the pfe rises crosses the -50 line into neutrality.

On occasion the pfe will move to 100 or slightly above and flatline for extended periods. Although I code the 100+ extremes in my presentation charts, they have no significance for determining the phase or entering/exiting positions.

The trading rules are to open a long position on confirmed bull phase and close when the phase ends, open a short position on confirmed bear have and close when the phase ends, and have no position when the phase is neutral.

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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