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COUNTING FRACTALS
Our use of the word fractal, or Elliott Wave fractal, is not a proper use of the property of self-similarity. When we use the term here we mean a "counting fractal," which is really a description of the relative position of a bar on a high-low bar chart. This may create confusion but we do not want to hijack 'Elliott Wave Fractal' from Dr. Bill Williams, the originator of the expression. Using so called fractals to count Elliott Waves first appeared, to our knowledge, in Dr. Bill Williams' book "Trading Chaos." Like many other concepts in Dr. Willams' books, the fractal is elegant in its simplicity. The basic definition of an 'up' fractal is a bar high that is both higher than the two bars immediately preceding it, and higher than the two bars immediately following it. The lows of the bars are not considered in determining the up fractal progression. If two bars in the progression have equal highs followed by two consecutive bars with lower highs, then a total of six bars rather than the usual five bars will make up the progression. The first high becomes the counting fractal. Reverse for 'down' fractals. A wide range bar can be both an 'up' fractal and a 'down' fractal at the same time.
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in time frames, or use a close only chart to resolve the relative importance of the fugitive fractal and whether or not it should be "forced" into the wave count. Fractals always mark the beginning and ending points of individual waves. As Dr. Williams put it, "Whatever happens between fractals is an Elliott Wave."
The Investor/RT Fractal indicator is based upon the "Bill Williams Fractal" in the book "Trading Chaos" by Bill Williams, PhD. A fractal is an entry technique that is traditionally defined as "a bar that has two preceding and two following bars with lower highs (or
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lower lows, on a down move)". Several different varieties of up and down bar 5-bar fractal formations can be seen below.
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Whether or not Momentum Waves could be considered as true Elliott Waves is not important. We just accept that they are not and use them for what they are very good at doing, identifying the current state and the probable termination point of a swing. The most important single concept about the Elliott Oscillator is that the highest/lowest point of the Oscillator is connected to the bullish/bearish Wave 3 of the swing. Related concepts are that Wave 4 crosses the zero line in the opposite direction of the trend. Wave 5 often makes a new high or low price for the swing but always diverges from the Oscillator. If the suspected Wave 5 makes a new extreme price simultaneously with a new Oscillator extreme then it is not a Wave 5. This happens fairly often with intraday charts. What you're seeing in that situation is an extended Third Wave which carries the implication of a significant price move in the direction of the trend yet to come.
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display about 120 bars of anywhere from 15 to 240 minutes of intraday data. The time period of the bars in the chart is arranged to always show the swing as an event consisting of about 120 bars. The sample SPX chart comprises 85 minute bars. This more recent Eurodollar chart comprises two day bars. The completed five wave sequence would be invalidated by any move below the suspected 5th wave 1.17 low.
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