Fractal Resonance Composite

12 dic 2016

Fractal Resonance Composite compresses 8 timescales of stochastic oscillators into just 3 color-coded composite lines: fast, medium and slow. Fast emphasizes the shorter timescale oscillators, medium considers all 8 timescales evenly, and slow emphasizes the longer timeframe oscillators. The composite lines indicate how overbought/sold the market is relative to the size of its recent movements. Major buys occur when all three composites enter the Oversold (green shaded) range and turn up, and major sells when all three reach the Overbought (red shaded) range and turn down. The fast line's quicker reversals and exaggerated alternations on smaller price moves makes it more fit for scalping. Notice the fast and medium lines tend to snap back toward the slow line like stretched rubber bands.

As is particularly apparent in the slow line, the nifty mathematics of the compositing process reconstruct the topology (peaks and valleys) of the underlying price curve in a smoothly distorted "cartoon" form that has a very useful property: the composite lines are confined to +-100% Extreme Overbought/sold oscillatory ranges. (By definition, only extremely rare "parabolic" moves can push all 3 composites beyond +-100%). If we knew that price would always stay confined to a certain range, trading would be much easier, no? Always buy the bottom of the range and sell the top!

How it works
To understand what's behind this nifty property, consider the mathematics of LazyBear's WaveTrend port .
The formula is fairly simple as indicators go yet statistically fundamental in a way that suggests it should have been the grandfather of all market stochastic oscillators. It's just a running average of the ratio:

(price's current deviation from it's mean)
-----------------------------------------------------------
(running average of absolute |price deviation from the mean| )

In formal statistics notation this is written:

E{ (X - E{X}) / E{|X-E{X}|} }

Where X is the price random variable and E{} the averaging or Expectation operator, implemented in this oscillator as exponential moving averages.

Conceptually, the denominator measures and normalizes by the typical size of recent price moves. This normalization process is what stretches or compresses the local price movements such that the whole composite curve can stay within the oscillatory range.

Attributes
The default fast=.6, medium=1, slow=1.4 compositing factors give each line visually distinct behavior, but can be tweaked to emphasize different oscillator "speeds".

Particular lines can be disabled by setting their line width to 0.