2B detector beta

14 בינו׳ 2021

Identifying a trend reversal is practically tricky, given that price movement is somewhat unpredictable and mostly obeys a power law. In which the price difference is primarily out of normal distribution. According to Benoit Mandelbrot, the price distribution follows an alpha-stable distribution with α equal to 1.7.

Real data observation suggests that stock prices do not follow the Random Walk Hypothesis or Brownian motion. Instead, they follow a fractal pattern. Fractals exhibit similar patterns at different scales called self-similarity. Using this character, one can develop fractal patterns to identify local highs and local lows.

This indicator identifies the reversal signal so-called 2B base on the following logic:

1. Identify local highs and local lows with fractals
2. Define relative positions of those local highs and lows (ABC and 2B)
3. Define the local range of ABC and B

Disclaimer: This indicator is only for research purposes. Please do not take it as investing or trading advice.