Radha Panini's article “Using the Fractal Dimension Index – Trading Systems and Fractals”, appearing the March 2007 edition of Technical Analysis of Stocks & Commodities magazine, discusses the benefits of applying fractal analysis to a few well-known trading systems. Panini focuses primarily on an indicator called the Fractal Dimension Index (FDI) which is applied as a filter for the trade entries generated by the sample trading systems. The FDI is used to measure the fractal dimension of a price series. Typically, its values range between 1-2. In this article, 1.5 is the level used to filter trade entries. FDI values above 1.5 indicate that the market is trading in a range while values below 1.5 indicate that the market is trending.
If the reading is greater than 1.5, then the equity is range bound.
If the reading is less than 1.5, then the equity is trending.
The closer to 1.5 you get, the more of a random walk the equity is doing.
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