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Directional-change intrinsic time is an event-based operator to dissect a data series into a sequence of alternating trends of defined size δ {\displaystyle \delta }.
The directional-change intrinsic time operator was developed for the analysis of financial market data series. It is an alternative methodology to the concept of continuous time. Directional-change intrinsic time operator dissects a data series into a set of drawups and drawdowns or up and down trends that alternate with each other. An established trend comes to an end as soon as a trend reversal is observed. A price move that extends a trend is called overshoot and leads to new price extremes.
Figure 1 provides an example of a price curve dissected by the directional change intrinsic time operator.
The frequency of directional-change intrinsic events maps the volatility of price changes conditional to the selected threshold δ {\displaystyle \delta }. The stochastic nature of the underlying process is mirrored in the non-equal number of intrinsic events observed over equal periods of physical time.