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Prometheus Polarized Fractal Efficiency (PFE)
This indicator uses market data to calculate Polarized Fractal Efficiency (PFE) on an asset, so traders can have a better idea of which direction it may go.
Users can control the lookback length for the fractal calculation, the lookback length for the Exponential Moving Average (EMA), and whether or not to display lines at the -50 and 50 level, or -25 and 25 level.
Polarized Fractal Efficiency:
The Polarized Fractal Efficiency (PFE) indicator is a value between -100 and 100 with 0 as a midpoint.
A PFE above 0 indicates the asset may trend higher, a PFE below 0 indicates the asset may trend lower.
There are many ways to trade with PFE, the intuitive trend riding as described above, or reversals.
Even when the PFE is above 0, if it gets high enough, it may also be an indication of a reversal. A PFE of 90 - 100, or -100 - -90, may indicate price is ready to revert the other direction. Furthermore, traders already in a position may look to breaks of other levels to be their take profit or stop out spot.
Calculation:
Pi = 100 x (Price - Price[i - N])2 + N2 / Summation, j= 0, to N-2 (Price[i-j] - Price[i-j-1])2 + 1
If Close < Close[i-1] Pi = -Pi
PFEi = EMA(Pi, M)
Where:
N = period of indicator
M = smoothing period
Citation: investopedia.com/terms/p/pfe.asp
Scenarios:
Inputs are (9, 5) and every display option is on.
tradingview.com/x/7ydXRkPS/
Trend example
Step 1: A short trade appears as PFE crosses below -25. We reach a safe take profit as PFE crosses below -50. Traders can use these levels to exit as well as enter.
Step 2: On the cross above 25 there is a safe long. As the PFE value breaks 0 a safe, early take profit could be appropriate for this trade. No guarantee we would see 50.
Step 3: Long scenario at break of 25, straight to 50. Simple, straightforward setup.
Step 4: This long results in a stop loss. Once again entry as PFE crosses 25, but as we cross the 0 line it is for a loss.
Step 5: The last trade in this example is reminiscent of step 3. This is a short trade entry at break of 25 and exit at break of 50.
Traders have liberty to use the PFE value to determine spots to enter and exit trades, long or short. 25 and 50 were chosen arbitrarily, values like 10 and 60 may work as well, we encourage traders to use their own discretion along with tools.
tradingview.com/x/YGwqpvNc
Reversal example
Step 1: PFE is around -100, crossing below it at one point! Strong zone for a potential reversal.
Step 2: PFE crosses above 25 adding conviction.
Step 3: Option to exit at 70.
Step 4: Option to exit at 90.
There is no “one size fits all method”, this approach may be more intuitive for some users and is just as feasible as the first.
tradingview.com/x/NAgDNLCF/
Longer trend example
Step 1: Using -50 and 50 this time instead of -25 and 25 to be safer on our entries we see a short here. Was a good entry and as the value gets closer to -70 we can safely close.
Step 2: On this candle we see a long for the break of 50. On the next candle we break the 0 line, but because of our safe entry at 50, we could hold this and only stop out at a break of -25. We get close but stay in it and close at 70.
Step 3: Break of 50 for a long once again. This time the break of 0 line occurs as we are in profit, not letting a green trade go red is a golden rule of trading, so an early exit here.
Step 4: Same at step 2, break of 50 to long and stay in it, not stopping out at break of 0 line. The PFE value eventually reaches 70 and there is a good exit.
tradingview.com/x/TxQYSmOF/
Quicker Reversal example
Step 1: Notice a close with PFE below -90, enter long for the reversal. Then close for profit when the PFE crosses above 70.
Step 2: When the PFE breaks above 90 we have a short entry. Like the long closing it when it crosses below -70.
Step 3: This step is the same setup as step 2. As PFE breaks above 90 we have a short entry. Closing it when it crosses below -70.
Recap:
Described above are 4 different examples with many different trades. Both trend and reversal trades. The PFE value is an indicator that can be used by traders in many different ways and Prometheus encourages traders to use their own discretion along with tools and not follow indicators blindly.
Options:
Users can control the input for the lookback of the indicator. The default is 9.
The smoothing factor for the EMA is also changeable, default is 5.
Users have options to display lines at -50, -25, 25, and 50.
Users can control the lookback length for the fractal calculation, the lookback length for the Exponential Moving Average (EMA), and whether or not to display lines at the -50 and 50 level, or -25 and 25 level.
Polarized Fractal Efficiency:
The Polarized Fractal Efficiency (PFE) indicator is a value between -100 and 100 with 0 as a midpoint.
A PFE above 0 indicates the asset may trend higher, a PFE below 0 indicates the asset may trend lower.
There are many ways to trade with PFE, the intuitive trend riding as described above, or reversals.
Even when the PFE is above 0, if it gets high enough, it may also be an indication of a reversal. A PFE of 90 - 100, or -100 - -90, may indicate price is ready to revert the other direction. Furthermore, traders already in a position may look to breaks of other levels to be their take profit or stop out spot.
Calculation:
Pi = 100 x (Price - Price[i - N])2 + N2 / Summation, j= 0, to N-2 (Price[i-j] - Price[i-j-1])2 + 1
If Close < Close[i-1] Pi = -Pi
PFEi = EMA(Pi, M)
Where:
N = period of indicator
M = smoothing period
Citation: investopedia.com/terms/p/pfe.asp
Scenarios:
Inputs are (9, 5) and every display option is on.
tradingview.com/x/7ydXRkPS/
Trend example
Step 1: A short trade appears as PFE crosses below -25. We reach a safe take profit as PFE crosses below -50. Traders can use these levels to exit as well as enter.
Step 2: On the cross above 25 there is a safe long. As the PFE value breaks 0 a safe, early take profit could be appropriate for this trade. No guarantee we would see 50.
Step 3: Long scenario at break of 25, straight to 50. Simple, straightforward setup.
Step 4: This long results in a stop loss. Once again entry as PFE crosses 25, but as we cross the 0 line it is for a loss.
Step 5: The last trade in this example is reminiscent of step 3. This is a short trade entry at break of 25 and exit at break of 50.
Traders have liberty to use the PFE value to determine spots to enter and exit trades, long or short. 25 and 50 were chosen arbitrarily, values like 10 and 60 may work as well, we encourage traders to use their own discretion along with tools.
tradingview.com/x/YGwqpvNc
Reversal example
Step 1: PFE is around -100, crossing below it at one point! Strong zone for a potential reversal.
Step 2: PFE crosses above 25 adding conviction.
Step 3: Option to exit at 70.
Step 4: Option to exit at 90.
There is no “one size fits all method”, this approach may be more intuitive for some users and is just as feasible as the first.
tradingview.com/x/NAgDNLCF/
Longer trend example
Step 1: Using -50 and 50 this time instead of -25 and 25 to be safer on our entries we see a short here. Was a good entry and as the value gets closer to -70 we can safely close.
Step 2: On this candle we see a long for the break of 50. On the next candle we break the 0 line, but because of our safe entry at 50, we could hold this and only stop out at a break of -25. We get close but stay in it and close at 70.
Step 3: Break of 50 for a long once again. This time the break of 0 line occurs as we are in profit, not letting a green trade go red is a golden rule of trading, so an early exit here.
Step 4: Same at step 2, break of 50 to long and stay in it, not stopping out at break of 0 line. The PFE value eventually reaches 70 and there is a good exit.
tradingview.com/x/TxQYSmOF/
Quicker Reversal example
Step 1: Notice a close with PFE below -90, enter long for the reversal. Then close for profit when the PFE crosses above 70.
Step 2: When the PFE breaks above 90 we have a short entry. Like the long closing it when it crosses below -70.
Step 3: This step is the same setup as step 2. As PFE breaks above 90 we have a short entry. Closing it when it crosses below -70.
Recap:
Described above are 4 different examples with many different trades. Both trend and reversal trades. The PFE value is an indicator that can be used by traders in many different ways and Prometheus encourages traders to use their own discretion along with tools and not follow indicators blindly.
Options:
Users can control the input for the lookback of the indicator. The default is 9.
The smoothing factor for the EMA is also changeable, default is 5.
Users have options to display lines at -50, -25, 25, and 50.
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