Fractals in forex: principles, types, rules of construction. Advantages and disadvantages of using forex fractals strategy. A practical example of forex trading based on fractals.
In math, fractals are infinitely complex patterns that are self-similar across different scales. Each part of this pattern repeats the whole formation. In trading, fractals are indicators on candlestick charts that identify reversal points in the market.
A fractal is a pattern that is a price extreme featured in the period of five and more candlesticks. It is used as a confirming signal for taking a trading decision. Based on the pattern, Bill Williams designed the indicator. From this article, you will learn how to employ fractals in complex forex trading strategies explained on practical examples.
Fractal, in my opinion, is one of the most useful patterns that quite accurately signals a local trend reversal. Even if, in the real market, perfectly symmetrical construction of fractal candles is rare, beginner traders discover this pattern one of the first - it catches your eye almost immediately.
It is remarkable that this term was the first introduced as a trading term by Bill Williams, but he used it incorrectly. It has nothing to do with the mathematical theory of fractals, it is rather a common price high or low used to enter the trades in trend during the correction.
Read this article on and you will learn:
You will also see practical examples of how you can employ forex trading strategies based on fractals and fractals indicators.
A fractal is a pattern composed of five or more closed bars, where the middle bar is the highest high/lowest low compared to the bars on both sides. The bars must be closed, as there may be a price movement in the fifth bar that could mark a new extreme.
The difference between the price rise on the left of the fractal bar (momentum) and the price decline on the right (pullback) is called a lever. If the price at the moment of closing of the last bar returns to the level of the pattern beginning (the level of the first bar), the lever is equal to zero, and the fractal is complete.
trading, the market concept of fractals forming on the price chart is like this: traders enter trades in the trend and push the price up. At some point, there are no more buyers as everyone, who wanted to buy, has already opened their positions, that is how the fractal bar forms. Next, the price rolls back. The most impatient traders are exiting their trades; afterward, the price is going up again, and, after the balance point is passed, there forms a new fractal.
Special features of fractals trading.
Problems of trading fractals
The fractals indicator itself is only an information indicator. It is most commonly combined with the Alligator (also developed by Bill Williams) and with Fibonacci levels.
The most popular strategy is using pending orders in a strategy based on the breakout of the level built according to at least three fractal peaks. Continue reading with Litefinance.com...
