TECHNICAL ANALYSIS
• Fractals are natural support and resistance levels;
• Fractals on higher time frames can be/spot significant levels;
• Fractals can be useful for placement of Fibonacci retracement levels;
• Last but not least: Fractals are an excellent method of determining the trend (without bias).
Before we explain how to use fractals for FX trading, let us first take a look at the basics.
The basics The fractals
indicator was first
created by the great trader Bill Williams. Any trader should be able to add the indicator without any problems on their charts. Fractals are based on either chaos theory or mathematics.
1) In the chaos theory the market is fractal in nature:
Fractal in nature means that the market makes same/similar movements on all time frames.
These recurring patterns might seem ad random, but have an order to them, which can be explained by the Elliott Wave Theory. In that regard, chaos has ordered in it on a higher scale.
FX
Chart 1. Fractals indicator on a candlestick chart
2) Te mathematical definition of a fractal also says something similar:
“Fractals are typically self-similar patterns, where self-similar means they are “the same from near as from far… Fractals may be the same at every scale.” (Source: Wikipedia)
Fractal indicator
Te fractal indicates a bottom or top. Te basic fractal indicator is composed of a minimum of 5 bars. Te fractal qualifies when this happens:
• The Fractal Technical Indicator is a series of at least five successive bars, with the highest HIGH in the middle, and two lower HIGHs on both sides;
• The reversing set is a series of at least five successive bars, with the lowest LOW in the midst, and two higher LOWs on both sides, which
correlates to the sell fractal;
• The fractals have High and Low values and are indicated with the up and down arrows.
See example on chart 1 for up and down fractals.
Fractals will automatically appear on a trader’s chart if they choose the fractal indicator. A word of caution though:
• On live charts fractals can sometimes appear on the chart with only one candle to the right;
• A fractal with one candle to the right of it, is an unconfirmed fractal, and it will disappear from the chart if price pierces through that level;
• Terefore a trader must wait for two candles to the right and then the fractal will always appear on the chart.
FX TRADER MAGAZINE July - September 2018 41
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