Fractals indicator is one indicator that is quite often used among traders, because the display is easily seen and able to provide a pretty good accuracy in forex trading. This indicator is included in the Bill William type of indicators, such as the Alligator.
Fractals themselves are formed from simple movements that occur in the market. Fractals show the geometric patterns of movements that occur in the market, then processed into indicators. This indicator itself emphasizes the possibility of reversing the direction of a price on a currency pair.
Fractals display the point of price change by bringing up icons like arrows. For traders, this makes it easy because farctals will appear at the point most likely to change the trend, then traders can take entry in that area.
The Fractals calculation formula itself is as follows:
Bullish Fractals :
Where: N = High / low of the current price candlestick
N – 2 = High / low of the two-period price candlestick
to the left of N
N – 1 = High / low of one period price candlestick
to the left of N
N + 1 = High / low of one period price candlestick
to the right of N
N + 2 = High / low of the two-period price candlestick
to the right of N
This is the display of Fractals on the chart
Display of Fractals on the MT4
How to Calculate Fractals Manually?
If you want to calculate Fractals manually, here are the steps:
- Isolate the high / low point (N) on the graph.
- If there are two lower highs on the left high or two higher lows on the low left (N-2 and N-1), there is a possibility of a pattern. The pattern still needs two more candlesticks on the right to confirm.
- If two lower highs occur after the highest point then bearish fractals are finished (N + 1 and N + 2). If two higher lows occur after low bullish fractals are finished.
Read also : Functions and Duties of the Central Bank
How to Trade Simple Strategy and Profitable with Fractals?
Simply put, trading using Fractals can be done as follows:
- Identify the fractal points on the screen, preferably a timeframe that is used is also a large timeframe.
- If we want to do a buy order, then we should place a buy stop order above the fractals.
- If we want to sell a sell order, then we should place a sell stop order below the fractals.
- Stop loss can be installed using the Fractals point that occurred before, or exit when new opposing Fractals appear.
- Profit Targets also can be calculated using the Fractals point that occurred before or exits when new Fractals point appear.
See the example from the following image
Example of a Trading Model Using Fractals
Fractals indicate the possibility of changing trends. This is because Fractals basically show the price of “U-shape”, ie the possibility of prices reversing to form a U curve. Bearish Fractals have prices that move up and then down, forming a U down. Bullish fractals occur when prices move down but then start to move up, forming U upwards.
Because Fractals occur very often, and many of these signals are not good entry points, Fractals are usually combined using some other form of technical analysis. Bill Williams indicators such as the Alligator can be used to isolate trends. By combining Fractals with trend analysis, a trader can decide to buy only if the Fractals signal is bullish while the price trend is up. If the trend goes down, they might only do a sell entry when the Fractals signal is bearish, for example.
Don’t forget to always place a Stop Loss and Target Profit in every trade, as an anticipation step. Changes in prices can occur at any time, therefore need to be installed safeguards against the possibility of loss.
Keep in mind that the system using this indicator does not always provide certainty of profit and success. Therefore the loss limit must remain and be installed at every time an entry is carried out in the form of SL. Indicators are only tools to see what is likely to happen, not tools to see the future that will happen.
Always obey the rules when making transactions, because most traders make the mistake of breaking the rules they made themselves. This rule includes not opening new positions if the existing ones are not yet closed regarding SL or TP. Do not get carried away quickly when experiencing losses or when making a profit. Keep doing the analysis with good and focused mind to achieve forex trading system that are yielding consistent profits.