Thats definitely more like it. Do those lines extend beyond the point where the fractal was broken? (I'll try it myself shortly to see if they do)
The "mess of lines" you mention appear that way on the chart you posted because of 3 reasons.
1) Theres not enough lines. (eg fractal level too high, or not enough historical data used).
2) The lines on the chart you posted are too thick
3) The lines on the chart you posted are too dark.
If you use a much lighter color (barely visible against the background when it is a single line), and set it to the thinnest possible line (and solid, not dashed), as many many lines are plotted, they begin to thicken and darken in the regions where they are clustured most, creating a clear picture of regions of high historical support/resistance.
You should get an effect like the one shown below. When that happens, then it becomes easier to see where historically price bounced a lot. It might be useful for things like anticipating potential chop and staying out of a trade.
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Do you sorta see what effect i'm trying to go for?
pardon my ignorance but why are you building something to tell you where to trade? If your system telling you to trade at a certain area, yet no one else sees those areas, and volume moves the market, wont' you just get run over? And wouldn't the coloring of those lines changes as you go back further in time and get more data? How far back do you go before they're significant?
Nothing in life is to be feared, it is only to be understood. Now is the time that we understand more, so that we may fear less. - Marie Curie
Hi fminus, theres no ignorance lol. Most of us are ignorant (myself included) and are just experimenting to try and figure something out.
Yes you are correct that how far back you go in time dictates how many lines appear on the chart.
One idea might be to stick only to charts that are in historically new waters. Namely stocks/currencies/futures etc that are trading at price levels they have historically never traded before (or at least traded very briefly before).
But for me im interested in this because I'm on a hunt to try and figure out areas of the chart where consolidations are least likely to occur. I'm a big fan of hedging techniques, and the death-blow to hedger's is when the price action consolidates for longer than you can stay liquid (because you are increasing position size more and more as price bounces around in a region. You need the price to move SOMEWHERE, anywhere so that you can recover your loses. If it simply chops sideways for too long, you will be in trouble.
So i've spent the last few months trying to gain some insight into this area.
While most people spend their time trying to gain an edge by anticipating highs/lows, im not that interested in finding highs/lows. I'm more interested in finding techniques that help me improve my chances of entering in a region where the price is less likely to chop sideways. I dont care if it goes up or down, I just need it to move.
This heat-map idea was one of those attempts. I wanted to see if regions that have been historically very dense have a tendency to chop around more than the lightly colored regions.
Last edited by Sufyan; February 17th, 2015 at 05:42 PM.