|
Polarized
Fractal Efficiency
Description
The
Polarized Fractal Efficiency indicator (PFE) was
developed by Hans Hannula.
It was introduced in the January 1994 issue
of Technical Analysis of Stocks &
Commodities magazine.
As an engineer, programmer, and trader with
over 30 years market experience, Mr. Hannula
developed a unique approach to applying the laws
of fractal geometry and chaos to the markets.
Interpretation
Drawing
upon the pioneering works of mathematician Benoit
Mendelbrot, Mr. Hannula developed an indicator to
gauge the efficiency that prices travel between
two points in time.
The
more linear and efficient price movement, the
shorter the distance the prices must travel
between two points.
The more "squiggly" the price
movement, the less efficient it's travel.
The
primary use of the PFE indicator is as a measure
of how trendy or congested price action is.
PFE readings above zero mean that the trend
is up. The
higher the reading the "trendier" and
more efficient the upward movement.
PFE readings below zero mean that the trend
is down. The
lower the reading the "trendier" and
more efficient the downward movement.
Readings around zero indicate choppy, less
efficient movement, with a balance between the
forces of supply and demand.
Several
interesting phenomenon have been observed by Mr.
Hannula:
-
Indexes
(particularly the OEX) tend to have a maximum
PFE (both plus and minus) of about 43%.
-
The
middle region (around zero) is a balance
between supply and demand and therefore a
congestion point.
-
A
hooking pattern often occurs right before the
end of an efficient period.
This pattern occurs when the PFE
appears to have maxed out, turns in the
opposite direction towards zero, and then
makes one last attempt at maximum efficiency.
Trades can be entered
in the opposite direction, with a stop
just beyond the extreme of the hook.
Stay with the trade all the way to the
other extreme, unless it slows around the zero
line. If
it slows around zero, exit the trade and wait
for a new maximum efficiency entry.
|
