Entropy Analysis
When market uncertainty is high, the likelihood for any strategy — regardless if long or short — to fail increases significantly.
Last update: --Market Phase
Market Randomness and Trendiness Analysis
Reading the lower pane
Uncertainty % — how random the price path is.
Six measures of disorder, each ranked against its own recent history and averaged. High means one day tells you little about the next; low means the market is moving with some structure. The dashed line at 70 is where the model calls it extreme; the one at 40 simply marks calm.
TrendScore % — how persistent the moves are.
Four measures of memory — does a move tend to continue rather than reverse — averaged the same way. It says nothing about direction: a strong downtrend scores as high as a strong uptrend. Above roughly 60 the market is holding a direction.
Read together — they answer “will this market cooperate with a strategy right now?”, not “where is price going?”
- Low uncertainty, high TrendScore — a real trend. The candles turn green or red depending on which way the smoothed slope points.
- High uncertainty, low TrendScore — extreme uncertainty. The market is not doing anything repeatable.
- Anything in between — a range, and this is where Accumulation and Distribution come from. With no trend and no chaos, the model asks only which side of its own smoothed bias line the price sits on: above → accumulation, below → distribution. A quiet market drifting above its own average is being bought into; one drifting below is being sold into.
Current Component Levels
All Futures Markets
Uncertainty and trend analysis across major futures contracts, grouped by asset class.
CL - Crude Oil WTI
| Asset Class | Contract | Uncertainty % | Trend Score % | Entropy Regime | Weekly |
|---|---|---|---|---|---|
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Inspired by Entropy — Measuring Order and Chaos in Markets
Entropy is a fundamental concept used across physics, chemistry, and information theory to describe the degree of order or chaos in a system.
In nature, highly ordered systems (like crystal lattices) behave predictably, while disordered systems (like gases or turbulent fluids) exhibit randomness and instability. Financial markets behave in a very similar way: at times they display clear structure and persistence, and at other times they become noisy, unstable, and difficult to navigate.
This indicator is inspired by that idea. It combines concepts from:
- Thermodynamics and information theory (entropy)
- Chaos theory (Lyapunov exponent)
- Fractal geometry (Fractal Dimension Index)
- Non-linear dynamics (Poincaré analysis, Recurrence Quantification Analysis)
- Signal processing (Ehlers Super Smoother)
to quantify market order, structural persistence, and uncertainty in a single, coherent framework.
The Aqueduct Principle
Why do trends persist — and why do they end? Discover how the ancient Roman aqueducts explain the eternal battle between order and chaos in financial markets.
Rather than trying to predict price direction, the indicator focuses on a more fundamental question: Is the market currently ordered enough for reliable trading decisions?
Understanding the Two Core Signals
The indicator displays two continuous lines that describe the current quality and structure of the market:
- Uncertainty % (dark red line)
- TrendScore % (dark green line)
These two signals are designed to be read together, not in isolation.
Uncertainty % (Dark Red Line)
What it represents
The Uncertainty % measures how random, unstable, or unpredictable the market environment currently is.
It answers the question: How reliable are market signals right now?
The value ranges from 0% to 100%:
- Low values ? structured, orderly market
- High values ? chaotic, noisy market
How to interpret it
| Range | Interpretation |
|---|---|
| 0–35% | Low uncertainty — Stable market structure, signals tend to work well |
| 35–60% | Transitional phase — Mixed conditions, selective trading recommended |
| 60–80% | High uncertainty — Increased risk of false breakouts and whipsaws |
| Above 80% | Chaotic regime — Market behavior is dominated by noise rather than structure |
Important: A high Uncertainty % does not imply bearishness. It simply indicates that price behavior lacks structure, regardless of direction.
TrendScore % (Dark Green Line)
What it represents
The TrendScore % measures how strong and persistent the underlying market structure is.
It answers the question: Is the market organized enough to sustain a trend?
The score is also scaled from 0% to 100%:
- Low values ? weak structure, range-like behavior
- High values ? strong structural persistence
How to interpret it
| Range | Interpretation |
|---|---|
| Above 60% | Strong — Market structure supports trending behavior |
| 50–60% | Mixed — Developing structure, early trend or late trend conditions |
| Below 50% | Weak — Sideways or range-dominated market |
What drives the TrendScore
The TrendScore is derived from structural measures such as:
- Long-term memory (Hurst Exponent)
- Fractal complexity (Fractal Dimension Index)
- Structural persistence (RQA Determinism)
- Low pattern breakdown (low divergence)
It focuses on structure, not direction.
Reading Both Signals Together
The real power of the indicator comes from combining both lines:
Low Uncertainty + High TrendScore
Ideal trend conditions — Market structure is clear and persistent
High Uncertainty + Low TrendScore
Choppy or chaotic market — Avoid aggressive positioning
Low Uncertainty + Low TrendScore
Stable range or accumulation/distribution phase
Rising TrendScore + Falling Uncertainty
Emerging trend — Structure is building
Falling TrendScore + Rising Uncertainty
Trend exhaustion or regime change — Increasing caution warranted
Entropy Regime (Color Coded Candles)
The candlestick colors represent the current market regime based on trend strength and uncertainty levels:
- Green (Bullish Trend): Strong uptrend with high confidence — favorable for long positions
- Light Green (Accumulation): Early bullish phase — building upward momentum
- Orange (Distribution): Early bearish phase — weakening momentum
- Red (Bearish Trend): Strong downtrend — favorable for defensive positioning
- Yellow (Extreme Uncertainty): Unclear market direction — avoid new positions
Practical Takeaway
This indicator is not about predicting price direction. It helps answer a more important question:
"Is this a good environment to apply my strategy right now?"
When the Market Cooperates
When Uncertainty is low and TrendScore is high, the market is cooperating. Conditions favor applying trend-following strategies with confidence.
When Patience Pays
When Uncertainty is high and TrendScore is low, patience and risk reduction are often the better choice. Wait for structure to return.
Data Sources
Financial Conditions: Chicago Fed NFCI | VIX & Volatility: FRED | Credit Spreads: FRED (ICE BofA indices)