Fractal is a technical analysis indicator developed by Bill Williams. Allows you to find on the price chart tops and bottoms for short periods of time. Its formation occurs at the moment when the average candle of at least 5 consecutive candles turns out to be significantly higher (lower) than other candles. Actually, this longest candle is called a fractal. On the chart, it stands out with an arrow. Trading in fractals allows you to identify strong areas, breaking through which the trend will continue to go in the same direction for some time. This inertial move we will try to catch for profit.
We study the trade of fractals
Trading in fractals gives the trader a space for experimentation. In the basic version we are talking about 5 candles to form a figure. But for long-term strategies, you can use a combination of 9-11 candles. Fractals are combined with moving averages. For example, the formation of a fractal up and the intersection of a sliding one may indicate a potential reversal.
The proposed trading strategy works on a minute interval, the optimal currency pairs are EUR / USD, GBP / USD.
Conditions for opening a long position:
- the fractal indicator showed on the chart a cluster of fractals (more than 3 upwards) in a short period of time. The time interval is determined visually in comparison with previous periods;
- the distance between the first fractal candle up and the first fractal candle down at least 7-8 points.
If these conditions are met, a Buy Stop pending order is placed at the level of the first or maximum of the formed zone. Add to this order another 70-80% of the distance between the first fractal candle up and the first fractal candle down (at least 7 points) and put Take Profit. At the same distance, but in the opposite direction from Buy Stop, a stop loss is placed.
A short position is opened according to the same rules, but after the fractal zone is formed down, the stop loss and take profit orders change places (the stop loss is placed above Buy Stop, the take profit is lower).
Features of fractal trading:
- Not recommended for beginner traders. Scalping requires high concentration of attention, intuition and knowledge combined with instant decision making. This all comes only with experience;
- trade is best conducted in a calm market, at the time of strong fluctuations, the zone of fractals may turn out to be false or the direction of the trend can be quickly changed.
The strategy is attractive because it allows you to find strong levels of resistance and support. It can also be used on long timeframes, but the formation of a zone of fractals will take a relatively long time. Therefore, for H1 and higher intervals, this strategy is recommended as an addition to the main one. Leave questions and comments on the strategy in the comments!