OPEN-SOURCE SCRIPT
Chaos Cypher
Updated
Overview
Technically a smooth linear rate transformation, the "Chaos Cypher" drew some inspiration from the principles of Markov and chaos. Aside from price action, this combination provides a different lens through which to observe and interpret market movements. Markov models are based on the principle that future states depend only on the current state, not on the sequence of events that preceded it. Chaos theory deals with systems that are highly sensitive to initial conditions, a concept popularly referred to as the butterfly effect.
The Chaos Cypher when compared to the Fisher Transform
Conclusion
This indicator is designed to be forward-thinking and attempts to combine theoretical concepts with practicality. It has the ability to work with minimal data, adapt to various timeframes, and provide clear views of market movements. It back tested very well even when unrealistically used as a sole instrument.
"Two states differing by imperceptible amounts may eventually evolve into two considerably different states ... If, then, there is any error whatever in observing the present state—and in any real system such errors seem inevitable—an acceptable prediction of an instantaneous state in the distant future may well be impossible....In view of the inevitable inaccuracy and incompleteness of weather observations, precise very-long-range forecasting would seem to be nonexistent." -Edward Norton Lorenz
Technically a smooth linear rate transformation, the "Chaos Cypher" drew some inspiration from the principles of Markov and chaos. Aside from price action, this combination provides a different lens through which to observe and interpret market movements. Markov models are based on the principle that future states depend only on the current state, not on the sequence of events that preceded it. Chaos theory deals with systems that are highly sensitive to initial conditions, a concept popularly referred to as the butterfly effect.
- Efficient with Minimal Data: Designed to perform efficiently, the CC indicator is particularly useful in situations regardless of extensive historical data, except for obvious back testing, while still providing strength at identifying potential overbought/oversold zones and critical divergences.
- Simplified Momentum Analysis: With further inspiration from the triple smoothed exponential rate, the CC actually uses linear regression for its calculations. This approach allows for a clear and more straightforward identification of deviations in momentum. The smoothing helps allow it to provide details while still operating at a fast pace due to the regression speed.
- Adaptable to Various Timeframes: The transformation calculation then employed effectively narrows its scope in relation to the pace, enhancing its applicability across multiple timeframes and periods. This flexibility makes it a versatile tool suitable for various strategies and market conditions.
- Fisher Transform Style Presentation: The indicator is presented in a style reminiscent of the Fisher Transform. However, this method of the script recalculates based on every individual dataset. To maintain efficiency, the adjustable length only applies to the regression rate.
The Chaos Cypher when compared to the Fisher Transform
- Inversion Option for Leads: Lastly, an intriguing find when testing this script is the potential of the inversion option. This aspect proved particularly useful when searching for pullbacks on a trending market.
Conclusion
This indicator is designed to be forward-thinking and attempts to combine theoretical concepts with practicality. It has the ability to work with minimal data, adapt to various timeframes, and provide clear views of market movements. It back tested very well even when unrealistically used as a sole instrument.
"Two states differing by imperceptible amounts may eventually evolve into two considerably different states ... If, then, there is any error whatever in observing the present state—and in any real system such errors seem inevitable—an acceptable prediction of an instantaneous state in the distant future may well be impossible....In view of the inevitable inaccuracy and incompleteness of weather observations, precise very-long-range forecasting would seem to be nonexistent." -Edward Norton Lorenz
Release Notes
- Minor changes to defaults
Release Notes
Diluted the absolute value of the initial rate in the calculation to reduce the unnecessarily exaggerated results and added the offset customization option per the least squares average(linear regression), adjusting this can increase or decrease the number of outliers on the channel while still being able to stick to a preferred dataset(length.)Release Notes
Ability to customize transform smoothing based on successful back testing and minor aesthetic changes to scriptRelease Notes
Fixed coloring errorOpen-source script
In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in publication is governed by House rules. You can favorite it to use it on a chart.
KP
Disclaimer
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