The term “Fractal” comes from difficult mathematics and is used to apply the idea of theoretically fractional dimensions to naturally occurring geometric patterns.
We’ll talk about using fractals in trading, which are repeated patterns that appear amidst more erratic and significant price changes. Fractal is a word that implies “broken” or “fractured.” Bill Williams, who also developed the Alligator indicator, introduced the fractals indicator as a trading tool. The Williams Fractal is an indicator that uses arrows to identify reversal points (highs and lows). The shapes of up and down fractals are distinct. Users can predict the future course of the price using the Williams Fractal indicator. Williams advises combining the Alligator and Fractals indicators. If the fractal is above the alligator’s teeth, there will be a lengthy signal; if it is below, there will be a short signal.
Standard on our trading platform Quotex Terminal is the Fractals indicator. Since it will already be installed, there is no need to execute a fractal indicator download.
Hence, the first thing you should do is add these crucial indicators to your charts.
So, traders are spared the task of looking for the pattern. The software will highlight all the patterns when the indicator is applied to the chart. Traders that do this will notice an issue right away: this pattern is common.
Appearance and setting
A bottom or a top can be seen in the fractals. There must be at least 5 bars in the basic fractal indicator. Hence, the following may have occurred for a fractal to appear when you see one:
The fractal forms a new high to the preceding fractal in this instance, which caused an up fractal to appear on the candles.
How to use Fractals?
The magic takes place right here. It is best to combine fractals with other indicators or analytical techniques. The alligator is a typical fractal confirmation indicator. It is a tool made by combining many moving averages. A long-term uptrend can be seen on the chart below, with the price primarily remaining above the alligator’s fangs (middle moving average). Bullish signals could be utilised to provide buy signals because the trend is upward. The trader is responsible for risk management even while the system delivers entry.
Fractals should not be the sole component of a trading strategy or system. It is advised to combine it with additional indicators, oscillators, and tools.
First off, the numerous fractals that point in a single direction show how strong the trend is. In other words, “arrows” provide a point of reference for opening positions.
The indicator also works well for peaks. You may therefore recognise double tops, double bottoms, head and shoulders, etc. by paying attention to the fractals.
Lastly, fractals might be a sign that the existing trend is about to change.
Trading on Fractal Strategy
Although using fractals alone is not advised, some traders employ them in a turbo regime to purchase a high number of contracts with a short expiration date.
The strategy is simple:
- If the price exceeds the previous up fractal, the CALL option is purchased.
- The PUT option, on the contrary, must be bought when the price falls below the last lower fractal.
The minimum expiry period is the duration of one candle’s creation.
Trade short-term fractals in the long-term fractals’ direction. During greater uptrends, pay attention to long trade signals, and during larger downtrends, pay attention to short trade indications.
More Recommendations on Fractals:
- It is recommended to use fractals in conjunction with other metrics or tactics. These should not be used in isolation.
- Indicators that lag are fractals.
- The reliability of the reversal increases with the length of the chart. It’s also crucial to remember that the amount of signals generated decreases with increasing time period.
- Visualize fractals over a number of time periods.
When used in conjunction with other indicators and methodologies, fractals may be a useful tool. Each trader may discover their own application for fractals because they may be employed in so many various ways. Fibonacci retracement levels and employing an alligator indicator are two alternatives.
FAQS
Q: What are fractals in forex trading?
A: Fractals are technical analysis indicators used in forex trading to identify potential reversal points in the market. They are made up of five consecutive bars, where the highest high is seen in the middle, flanked by two lower highs on either side, and two bars with lower lows.
Q: How can fractals be used in forex trading?
A: Fractals can be used to identify potential reversal points in the market. Traders can use them to enter or exit trades, as well as to set stop-loss and take-profit levels.
Q: Can fractals be used in conjunction with other technical indicators?
A: Yes, fractals can be used in conjunction with other technical indicators such as moving averages, oscillators, and trend lines to confirm potential reversal points.
Q: How reliable are fractals in forex trading?
A: Fractals are not 100% reliable in forex trading, as with any technical indicator. However, they can be a useful tool in identifying potential reversal points and should be used in conjunction with other technical indicators and fundamental analysis.
Q: How do I add fractals to my trading platform?
A: Fractals are a built-in technical indicator in most trading platforms. They can be found under the “indicators” or “oscillators” category.
Q: Can fractals be used in other financial markets besides forex?
A: Yes, fractals can be used in other financial markets such as stocks, commodities, and cryptocurrencies.
