Trading Fractals: A Complete Beginner Guide

Fractals are a helpful traders’ tool that makes it possible to enhance not only a trading strategy but also the use of technical analysis when utilized with other technical indicators. Besides, they come as a handy technique whenever you need to apply a safe market entry method or identify a spot to place stop-loss orders.

As a rule, fractals refer to natural support and resistance levels. At the same time, they can be spotted at significantly higher levels, which makes them a perfect instrument to determine the trend. In this article, we will define fractals, their use, and simple ways to apply them in Forex trading.

What Are Fractals?

What is fractal? When traders come across the term, complex math is the first thing that comes to their minds. However, fractals in trading are different from what we know from mathematics. Here, we are discussing recurring patterns that appear when the rice makes bigger chaotic moves. As a rule, the pattern is plotted with five or more bars. Here are some simple tips that will let you identify fractals on a chart:

1. A pattern with lower highs on each of its sides along with the highest high in the middle is considered a BEARISH turning point.
2. A pattern with the lowest low in the middle and higher lows on each side is considered a BULLISH turning point.

The image below shows the basic variation of the two fractal types. They may look a bit different but still depict a valid fractal pattern.

The key challenge here is that fractals refer to lagging indicators. It means that available bars are not enough to highlight a continuing reversal.

Major Factors to Consider when Using Fractals

Traders should take into account several crucial things before using fractals. They are as follows:

• Fractals refer to lagging indicators.
• To make the most of them, fractals should be used in combination with other trading strategies or Forex indicators. Traders should not rely only on this particular indicator.
• The most reliable reversal comes with a long-running chart.
• The longer the time frame, the fewer signals will be generated.
• Multiple timeframes are better to plot fractals.

The good news for beginners is that indicator comes as a built-in solution in the majority of charting software. It means that you do not have to download or configure it manually.

The Use of Fractals in Trading

Experienced traders usually integrate fractals in their strategy as an additional instrument. Most of them use it alongside the Alligator indicator also known as William’s Alligator.

Trading with Fractals

Having fractals formulas in your trader’s toolkit can enhance your trading strategy. The main benefit is that the indicator comes with clear and defined rules with no stumbling blocks or false signals. Fractals are able to plot crystal clear support and resistance lines along with horizontal levels.

This fact makes it easy to place a greater trailing stop loss. Besides, traders can increase the value of higher time frames, as it provides them with more space for trade.

The Bottom Line

Fractals are a proven method to enhance your trading but only when used in conjunction with other strategies or indicators. They can be used differently depending on the trader’s style and techniques although fractals are not obligatory to successful trading. What’s more, you are not supposed to rely on them solely.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.