What is Polarized Fractal Efficiency (PFE)?
Polarized Fractal Efficiency (PFE) is a technical indicator developed by Hans Hannula to determine price efficiency over a user-defined period.
- Polarized Fractal Efficiency (PFE) is a technical indicator that determines price efficiency over a user-defined period.
- PFE uses fractal geometry to determine how efficiently the price of a security fluctuates.
- PFE helps traders determine the direction and strength of a trend.
Understanding Polarized Fractal Efficiency (PFE)
Hanula’s work follows in the footsteps of Benoit Mandelbrot, whose work as a mathematician and contemporary polymath culminates in his now infamous book. Market fraud: a fractal view of financial turmoil.. Mandelbrot’s 2006 book continues to win many followers with a revolutionary reassessment of standard tools and models in modern financial theory.
That premise is elegantly captured through the fractal geometry of financial market applications. The work of Hanula and Mandelbrot has brought the long-awaited study of the chaos system to the financial system. Participants are increasingly aware that chaos theory and non-linear relationships are important drivers of investment behavior.
The polarized fractal efficiency indicator fluctuates between -100 and +100 with 0 as the centerline. Securities with a PFE greater than zero are considered to be on the uptrend, and readings below zero indicate a downtrend. A feature of Polarized Fractal Efficiency is the use of fractal geometry in determining how efficiently securities prices fluctuate.
..NSMe..= =100 XX ∑NS= =0NS−2..(((priceMe−NS..−priceMe−NS−1..)2+1..(((priceMe..−priceMe−NS..)2+NS2....When closedMe..ChooseMe−1..NS= =−NSNSNSEMe..= =ENSNS(((NSMe..,NS)where:NS= =Indicator periodNS= =Smoothing period..
The Polarized Fractal Efficiency (PFE) indicator measures the strength of the trend by its position with respect to the zero line. As a general rule, the farther the PFE value is from zero, the stronger and more efficient the particular trend will be. PFE values that fluctuate around the zero line may indicate that the supply and demand of securities are balanced and that prices may be trading flat.
In general, strategies that use PFE as a signal consider the buy sign as a reversal of the indicator’s direction and a move from the minimum to zero. When the indicator value reaches a peak above zero, a signal to close the position is signaled. The indicator shift from peak to zero indicates a sell signal. As a rule of thumb, traders should buy to cover all short positions after the indicator has formed a new minimum.
PFE indicators are also useful for assessing the strength of market trends. The higher the index value, the stronger the tendency. This means that a value of 100 shows a strong uptrend and a value of -100 shows a strong downtrend.
The PFE indicator generated a buy signal at American Tower Corporation (AMT) on July 30, 2019, approaching zero from its minimum. The indicator then generated a signal to close the position when it peaked above zero on August 12, 2019. The person who traded the PFE indicator in this particular example made $ 13.34 per share, or 6% (sell price of $ 221.02, buy price of $ 207.68). ). As with all technical indicators, traders should use PFE in combination with other forms of technical analysis.