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 plan is straightforward:
If the price exceeds the previous up fractal, the CALL option is purchased.
- Contrarily, when the price drops below the last lower fractal, the PUT option must be purchased.
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.
Further Advice on Fractals:
It is recommended to use fractals in conjunction with other metrics or tactics. These should not be used in isolation.
Fractals are indicators that lag.
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.