What is Fractal market hypothesis (FMH)’
The fractal market hypothesis (FPH) is an alternative investment theory is widely used efficient market hypothesis (GER). FMH analyzes the daily randomness of the market and the turbulence witnessed in accidents and crises.
Breaking the Fractal markets hypothesis (FMH)’
In the framework of the Fractal market hypothesis proposes a clear explanation of the behavior of the investor throughout the market cycle, including booms and busts. Through this Fund was enshrined in 1991, Edgar Peters as a way to create the basis for technical analysis of adjustments to the pricing of assets, according to the Central premise that history repeats itself. As such, the fractal markets hypothesis says that financial markets, especially the stock market, follow a cyclical and repeatable pattern.
The main components of the theory focus on the investment horizon and the liquidity of the markets are given a certain amount of information. The market is considered stable when it consists of investors in different investment horizons, given the same information. And Vice versa, leading to the crash and crisis, the FMH argues that the investment strategies converge more quickly. As a result, markets become less liquid and more inefficient.
Falling into the framework of chaos theory, FMH explains markets using the concept of fractals. Fractals are fragmented geometric shapes that can be split into parts, which repeat the form of the whole. As for markets, we can see that stock prices move in fractals. Thus, technical analysis is possible: in the same way that the patterns in fractals repeat on all timeframes, stock prices also seem to move in the replication of geometric patterns in time.
As The Fractal Market Hypothesis Works
Investment hypotheses largely depend on the prevalence of information with investors. During stable economic times, the information does not dictate investment and market prices. There are various numbers of long-term investors, who balance the number of short-term investors. However, in bullish markets, investors trend towards short-term horizons, in response to the movement of prices and information. As a consequence, the market becomes unstable and inefficient. In contrast to the efficient markets hypothesis, Fractal market hypothesis clearly defines investor behavior in the market.
Perhaps the most obvious problem of quantifying and using GET is decided by time that the “fractal” pattern should be repeated in one of the leading projection market. The pattern can be repeated daily, weekly, monthly, or even for a longer period. Therefore, it is difficult to accurately predict the time period of repetition, in spite of this are likely to be closely linked with the investment horizon, and it is also worth noting that the picture will likely not be identically repeated.