Todays’ title refers to an analogy of sorts…

Walking down the “broken and shattered” brick Road of the current global climate…. and having that Road built up with rather orderly and logical building blocks called Fractals.

Those of you who know me well are aware of my experiences with the Yen Crosses as some of my favorite instruments to work with .

While they certainly attract all the worker bees to the honey with their volatility and potential….there is a major downside here. You guessed it.

The “Sting”!

One of the ways I begin my analysis of these pairs is always looking for macro-patterns on the Monthly and Weekly charts, moving progressively down to an Hourly.

The Crosses, despite their empirical ATR and volatility punch, do have rather orderly factors built right in. As with all derivatives and units we trade…they are made up of Fractals.

A Fractal is generally “a rough or fragmented geometric shape that can be split into parts, each of which is (at least approximately) a reduced-size copy of the whole,” a property called self-similarity.

For our purposes….let’s just say a bunch of little stair-steps all over the place!

On the two examples from yesterday….our opening gaps were filled in nicely, and you can clearly see how these little “building blocks” brought us to the quieting and consolidating Price action we see now.

(Please click to enlarge the captures.)

I have drawn in our “Bear Flag/Pennant ” formations here, as well as some general support and resistance in this little range. These will signify a continuation of price action. You can see the “Fractal” grouping getting tighter and tighter…..like a Coil.

What happens next?  Pure Physics. These Coils will begin to tighten as we move along, and this energy will need to be expelled…so a breakout here is imminent. In classic technical analysis, this will occur at the “apex” point of the formation here. Does this always happen? No.

You say, “So Fractal Boy… when will Price actually break out?”…

I have no idea! It is what is, and I accept it as such.

( hee hee…and you thought I forgot about my “built-in Lesson…)

While I personally do not trade breakouts, I do observe them and react to them.

It is this type of concept…the coiling…the building of energy…the falling volatility… that is an Options Trader’s dream!

So why not use them in Currencies as well?

The Option players are nice guys…..I’m sure they will share with us!  :-)