Introduction to Equilibrium Fractal Wave Analytics
EFW Analytics was born to accomplish the statement “We trade because there are regularities in the financial market”. EFW Analytics is a set of tools designed to maximize your trading performance by capturing the repeating fractal geometry (fifth regularity) in the financial market. EFW Analytics is one of the very few tools supporting your trading logic without the need of backtesting. This tool consists of three parts including:
- Equilibrium Fractal Wave Index – Exploratory tool to support your trading logic
- Shape Ratio Trading System – trading system 1
- Equilibrium Fractal Wave Channel – trading system 2
What is Equilibrium Fractal Wave?
Equilibrium Fractal Wave is the building block of the fractal geometry in the financial market. By definition, equilibrium fractal wave is a simple triangle, made up from two price movements (i.e. two legs). EFW propagates into the price and time space when price need to move to the equilibrium level to balance between supply and demand. Each equilibrium fractal wave have their own unique shape due to the heterogeneous characteristic of the market. The shape can be expressed as the ratio of price height of the two lags. The shape ratio can be anything including both Fibonacci ratios or non Fibonacci ratios.
Equilibrium Fractal Wave Index
Equilibrium Fractal wave index is an exploratory analysis tool for your trading. How to use the EFW index is very similar to Hurst Exponent by Harold Edwin Hurst (1880-1978) or Fractal Dimension coined by Mandelbrot in 1975. Literarily, EFW index can help you to confirm the presence of equilibrium fractal waves in the financial market. However, Equilibrium fractal wave index is more practical and intuitive comparing to Hurst Exponent and Fractal Dimension for your trading. The value of equilibrium fractal wave index can range from 0.0 to over 1.0. Higher the equilibrium fractal wave index, you can confirm the stronger presence of a particular shape of equilibrium fractal wave. If the index value is below 0.2, then you may disregard the shape ratio from your trading.
Shape Ratio Trading System
The first method to trade equilibrium fractal wave is using the shape ratio of equilibrium fractal wave. It works similar to the typical Fibonacci retracement or expansion. However, there are few things different. In shape ratio trading, we do not limit our opportunity to Fibonacci ratios only. This means that you can trade Fibonacci ratio and non Fibonacci ratios with the shape ratio trading. In addition, in the shape ratio trading, we do not assume that every ratio including Fibonacci ratio will perform the same for each financial instrument. Due to these two characteristics, the choice of ratios should be made with EFW index together.
Equilibrium fractal wave channel
How to use EFW channel is extremely simple. You can simply use the proportional trigger method for your trading as it was introduced in the book “Financial Trading with Five Regularities of Nature: Scientific Guide to Price Action and Pattern Trading” (2017, Young Ho Seo).
How to Trade
You can trade in following modes:
This tool can choose up to three shape ratios for your trading. You can even switch on and off each shape ratios. Following are list of some important inputs.
- Trigger Margin for channel: use this input to adjust the width of trigger margin for channel
- Trigger Margin for Shape ratio: use this input to adjust the width of trigger margin for shape ratio trading
- EFW Index Period: calculation period of EFW index
- Shape ratio 1, 2, 3: choose between 0.1 and 1.0
- Search EFW with Shape Ratio 1, 2, 3: true or false to switch on and off