What is Composite Behavior ( CFB )?
All around you mechanisms adjust themselves to their environment. From simple thermostats that react to air temperature to computer chips in modern cars that respond to changes in engine temperature, r.p.m.'s, torque, and throttle position. It was only a matter of time before fast desktop computers applied the mathematics of self-adjustment to systems that trade the financial markets.
Unlike basic systems with fixed formulas, an adaptive system adjusts its own equations. For example, start with a basic channel breakout system that uses the highest closing price of the last N bars as a threshold for detecting breakouts on the up side. An adaptive and improved version of this system would adjust N according to market conditions, such as momentum, price or acceleration.
Since many systems are based directly or indirectly on cycles, another useful measure of market condition is the periodic length of a price chart's dominant cycle, (DC), that cycle with the greatest influence on price action.
The utility of this new DC measure was noted by author Murray Ruggiero in the January '96 issue of Magazine. In it. Mr. Ruggiero used it to adaptive adjust the value of N in a channel breakout system. He then simulated trading 15 years of D-Mark in order to compare its performance to a similar system that had a fixed optimal value of N. The adaptive version produced 20% more profit!
This DC index utilized the popular MESA algorithm (a formulation by John adapted from Burg's maximum entropy algorithm, MEM). Unfortunately, the DC approach is problematic when the market has no real dominant cycle momentum, because the mathematics will produce a value whether or not one actually exists! Therefore, we developed a proprietary indicator that does not presuppose the presence of market cycles. It's called CFB (Composite Behavior) and it works well whether or not the market is cyclic.
CFB examines price action for a particular pattern, categorizes them by size, and then outputs a composite size index. This index is smooth, timely and accurate
Essentially, CFB reveals the length of the market's trending action time frame. Long trending activity produces a large CFB index and short choppy action produces a small index value. Investors have found many applications for CFB which involve scaling other existing technical indicators adaptively, on a bar-to-bar basis.
- Loxx's Expanded Source Types
Adaptive Trend Cipher loxx]
Dynamic Zones Polychromatic Momentum Candles
RSI Precision Trend Candles
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