Fractals – an indicator introduced by Bill Williams. Simple and versatile, fractals can be used as a stand-alone indicator or in combination with other Forex indicators. Forex charts fractols Williams also gives us his approach to using fractals in trading, which we are going to highlight here as well.
Fractals point tops and bottoms where market reverses. Since fractals highlight points at which price failed to hold and therefore reversed, it is logical that once price beats its old fractal, there is a new strength coming. Setting a trade at the breakout point is an obvious and simplest application of the Fractals indicator. Another way to describe it: fractals help to see the levels of Support and Resistance. Fractals indicator makes it easy to identify and connect the most significant tops and bottoms needed to draw a trend line. Drawing trend lines using fractals could give some advantage to Forex traders since other market participants might also be using the same obvious price points for drawing trend lines. In an uptrend we will witness that there are more up fractals broken than down fractals.
In a downtrend there will be more down fractals broken. Should the break of the previous fractal fail, we get a first sign of price consolidation. Failure to successfully advance past previous fractal puts price on a consolidation path. To avoid an immediate coiling price will attempt to break at the opposite fractal. Should this move also fail to bring results, traders should prepare for a ranging market period till a new successful breakout. Fractals indicator is one of five indicators of Bill Williams’ trading system.
According to his system, Fractals have to be filtered with the help of Alligator indicator. If a Sell fractal is below the Alligator’s teeth traders should place a pending Sell Stop order few points below the low of the sell fractal. Don’t take any Buy positions if a fractal is formed below the Alligator’s teeth. Don’t take any Sell positions if a fractal is formed above the Alligator’s teeth. Consecutive fractals going in the same direction that are formed after the first order if triggered can be used to add on to an open trade. This trading system is very powerful.