The word " fractal ” comes from complex mathematics, where it is used to extend the concept of theoretical fractional dimensions to geometric patterns in nature.
Let's discuss how to use fractals in trading, where they refer to a recurring pattern that occurs amid larger and more chaotic price movements. The word "fractal" means "broken" or "fractured". As a trading tool, the fractals indicator was introduced by Bill Williams, creator of the Alligator indicator. Williams Fractal is an indicator that aims to detect reversal points (highs and lows) and mark them with arrows. Ascending fractals and descending fractals have specific shapes. The Williams Fractal indicator helps users determine in which direction the price will develop. Williams recommends using the Alligator and Fractals indicators together. A long signal would be if the fractal is above the alligator's teeth and a short signal would be if the fractal is below the alligator's teeth.
The Fractals indicator comes standard on our trading platformQuotex Terminal There is no need to run a fractal indicator download because it will already be there for you.
The first step you will want to do is, of course, toss these important indicators onto your charts.
This means traders don't have to hunt for the pattern. Apply the indicator to the chart and the software will highlight all patterns. When doing so, traders will notice an immediate problem: this pattern occurs frequently.
appearance and configuration
Fractals indicate a bottom or a top. The basic fractal indicator consists of a minimum of 5 bars. So when you see a fractal here is what might have happened for it to appear:
What is happening here is that the fractal forms a new high to the previous fractal and therefore made a fractal appear on the candles.
How to use Fractals?
This is where all the magic happens. Fractals are best used in conjunction with other indicators or forms of analysis. A common confirmation indicator used with fractals is the alligator. It is a tool created using various moving averages. In the chart below is a long-term uptrend with the price predominantly remaining above the alligator's teeth (average moving average). As the trend is up, bullish signals can be used to generate buy signals. The system provides inputs, but it is up to the trader to control the risk.
Fractals should not be used alone for trading system or strategy. It is recommended to use it in combination with other indicators, oscillators and tools.
- Firstly, the many fractals in one direction indicate the strength of the trend. In other words, the “arrows” provide a reference point where you can open positions.
- Second, the indicator is great for spikes. Therefore, by paying attention to fractals, you can identify double tops, double bottoms, head and shoulders, etc.
- Third, the fractal may indicate a reversal of the current trend.
Trading in Fractal Strategy
Although it is not recommended to use fractals alone, some traders apply it in the turbo regime to buy a large number of contracts with a minimum expiry period.
The strategy is simple:
- The CALL option is bought if the price exceeds the last ascending fractal.
- The PUT option, on the contrary, should be bought when the price drops below the last lower fractal.
The expiry period is minimal – the time of formation of a candle.
Trade short-term fractals in the direction of long-term ones. Focus on long trading signals during larger uptrends and focus on short trading signals during larger downtrends.
More recommendations on fractals:
- Fractals are best combined with other indicators or strategies. They must not be invoked in isolation.
- Fractals are lagging indicators.
- The longer the timeframe of the chart, the more reliable the reversal will be. It is also important to note that the longer the time period, the smaller the number of signals generated.
- Plot fractals on various timeframes.
Fractals can be useful tools when used in conjunction with other indicators and techniques. Fractals can be used in many different ways, and each trader can find their own variation. Using an alligator indicator is one option, and another is using Fibonacci retracement levels.