What is a fractal?
The market is basically static. Trends form on the market within 15-30% of all the time which enables traders to profit from the trend movements. In order to gain maximum profit on Forex, a trader needs to determine the points when a trend originates.
Fractals are indicators introduced by Bill Williams, revealing market top and bottom. No forex indicator is as convenient for characterizing forex market processes as the fractal. Fractals are frequent on the market, regardless of a time span. No matter what chart you analyze – a daily, weekly, hour, minute or tick one – you can always discern a fractal structure there. Fractals tend to quickly appear and disappear; few traders are able to handle this instrument. Thanks to the fractal traders can easily identify both correction and reverse trend.
The main advantage of the fractal is that it unmistakably indicates the optimal conjuncture to enter the market when the fractal is sure not to disappear. It is recommended to enter the market some time after the fractal has appeared. The fractal can be also applied for instant trading in the opposite direction. This option suits short term position trading. However, there is a number of trading strategies you can elaborate with the help of fractals.
The fractal is not a lagging indicator, but rather a time-lead one. If the fractal proves to be true, then the trader can have its sell and buy orders closed at the best prices. In case it appears to be wrong though, the trader should leave his/her positions unchanged and stay out of the market. The traditional technical analysis shows the fractal as a five-bar figure. Currency rates’ charts depict the fractal as signs (indices) over the price bars. Bill Williams distinguishes between upward fractals and downward ones. Fractals of the first type shape if there is a candlestick with the peak exceeding that of the two preceding and following candlesticks. Fractals of the second type on the contrary arise if the dip of a candlestick is lower that of the two preceding or following ones.
The fractal indicator is mainly aimed at identifying the market highest and lowest points. The trader should use the fractal as an additional indicator in order to have the most accurate data.