E. W. Dreiss, a trader based in Australia, came up with the creative idea of using fractal geometry as a way to measure price movement in a security. The chaotic nature of stock market movements explains why it is sometimes difficult to distinguish hourly charts from monthly charts if the time scale is not given. The patterns are similar regardless of the time resolution. Each level is like the one before it, but the size is different. To determine what is happening in the current level of resolution, the fractal chaos oscillator indicator can be used to examine these patterns. This is an excellent indicator to use in intra-day trading.
The indicator ‘looks back’ in time depending on the number of time periods selected to plot the indicator. The value of the oscillator is a good indicator of the choppiness or trendiness of the markets. the oscillator essentially returns to 0 in choppy markets and has a +ve or -ve value in trending markets. Another way to look at the oscillator is as an indicator that puts a value on the amount of trendiness of the markets.