The French economist and the mathematician, the creator of fractal geometry Benoit Mandelbrot was the first person who had paid attention to the repeating price formations. It was Williams who for the first time suggested that the market was chaotic, multiple-factor and self-regulating system and cancelled all linear models.
Fractal links of exchange prices and the repeating structures have been confirmed by the results of computer modeling. The fractal fr om Latin fractus means a steady scalable design of irregular shape emerging on any data.
Emergence of fractals means the beginning of a new price pyramid and is considered as a trading signal. A fractal up or a signal to enter to buy is the set in which at least 5 consecutive bars form a pattern, wh ere the highest maximum is shown by an average candle. A fractal down or a signal for position to sell is the reverse pattern made up by five or more consecutive candles, the average from which shows the lowest minimum.
The set of the real fractals is very dynamic. It can vary depending on quantity and structure. The main thing is that one of the central bars has to show an obvious extreme. Therefore, non-standard combinations can also be used as fractals:. If the extremes have appeared at several bars of a pattern, then only the last will be taken into account as a trading signal.
Current price movement 1 point higher the level of the fractal up is the breakthrough of the sellers, while if it is 1 point below the fractal down, it is a breakthrough of the buyers.
The approximate scheme of an entry is shown below. The strongest signal is just after its emergence, and the same group of candles can be used both for upper and for the lower fractals. Pointers of the appeared fractals are not redrawn. The border of the upper fractal is the maximum, while the border of the lower is the minimum. In case of formation of an opposite fractal, the current trading signal is cancelled.
The emergence of two multidirectional fractals close to each other sometimes in one candle is called a fractal start: The true breakdown of a fractal on any timeframe shall be confirmed by certain volumes. A firm breakthrough candle but with the small volume appears to be an unstable signal.
Also for an assessment of volumes it is recommended to use standard designs of Price Action. Nowadays nobody looks for the trading fractals on a price chart manually.
For these purposes a standard package of any trade platform includes the Fractals indicator. We will offer two popular trading strategies on its basis. Regular Fractals and Alligator indicators with standard settings are necessary for using this strategy. We trade all major currency and future assets: The entry scheme for fractals Forex trading is shown below. Stop losses are on an opposite extreme from 2 last fractals: We hold the transaction until the return fractal has been formed.
In a flat we ignore all fractals. Any currency asset of a middle volatility subject to steady trends is traded: The period for the analysis and entry is D1. Stops and profits are usually not put, at the end they are closed manually. If there is a fractal up it is a sale, in case of the lower fractal there is a purchase. It is possible to enter by a market order, and also by the pending orders:. Fractal trading is only one of the evaluation methods of the market which is effective during the periods of a stable trend, while in a wide flat can be unprofitable.
It is necessary to understand that the fractals trade strategies were initially developed for the stock market which was less volatile and more predicted.
However, fractals in conjunction with the trend instruments represent the powerful tool of a technical analysis and can be the basis of constructing the steadily profitable system.More...