Category: Advanced Indicator Set 1
Input parameters
Name
|
Setting
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Default
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Close
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Close Time Series
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Close
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Period
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Integer >= 1
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10
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Smoothing Period
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Integer >= 1
|
5
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Calculations
Path1 = Sqrt( (Close – Close[Period])^2 + Period^2 )
Path2 = Sum(from i=0 to Period-1)Sqrt( (Close[i] – Close[i-1])^2 + 1 )
FractalEfficiencyTmp = Sign(Close – Close[Period]) * Path1 / Path2 * 100.0
FractalEfficiency = ExpMovAvg(FractalEfficiencyTmp, Smoothing Period),
where:
Close[Period] (or Close[i]) is Close Period (or i) bars back,
Sign(a) is +1 if a>0 and –1 if a<0,
Sqrt(a) is square root of a,
Sum is a summation operation,
ExpMovAvg is Exponential Moving Average over Smoothing Period bars.
Path1 is simply the hypotenuse of the big triangle formed by the current Close and Period bars ago Close. Path2 is the sum of hypotenuses of small triangles formed by each Close point.
Discussion
Suggested by Hans Hannula [1], the Polarized Fractal Efficiency indicator is, in the essence, an exponentially smoothed ratio of the length of two lines: (1) of a straight line between today’s close and the close Period days ago, and (2) of a broken line connecting all Close points between today and Period days ago. The indicator output varies between -100 and 100. The theory behind this indicator is that if it is >50 (or <-50) then the market is likely to reverse its trend from positive to negative (or from negative to positive).
References
1. Hannula, Hans, Polarized Fractal Efficiency, Technical Analysis of Stocks & Commodities, January 1994, v.12, no.1, p.38-41.
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