Forex Fractal Strategy - Advanced Forex Strategies

Forex Fractal Strategy

Forex fractal strategy is a relatively simplistic concept when it comes to trading with finesse.  The basic premise here is that when it comes to asset prices, they follow certain trends or patterns, i.e. they are not random. So as a savvy trader, the idea is to identify those patterns and then trade accordingly. In many ways, parallels can be drawn with Fibonacci series and the idea of Fibonacci retracement levels trading; just as you have patterns emerging out of trades akin to the Fibonacci series, the same way you can have fractals coming to the fore as well.

Forex Fractal StrategyForex Fractal Strategy

The chart above gives you a very good idea of emerging patterns clearly visible for trades in the EUR/USD forex pair.

Forex fractal strategy first came on to the forefront thanks to the efforts of Bill Williams who had a number of indicators as a part of his overall trading system, one of which was the Fractal Technical Indicator.

Now, the idea of fractals is best understood when we break more long term trends down into shorter patterns which are recurring in nature.

With these patterns duly identified, it is about identifying the fractals themselves, which again is not a tough ask; the most commonly occurring fractals comprise of 5 bars with two possible outcomes:

  • If it is a bullish phase, the bar in the center would be the lowest with other bars higher up.
  • And if it is a bearish phase then the bar in the center would be the highest with other bars correspondingly lower.

The image below gives a good idea of fractals; on one hand you have the ideal scenarios of fractals showcased on the left (as also described above), along with variations of the same presented alongside.

Fractal Indicator Strategy How to Trade the Forex Fractal Strategy

Now, with a primary, theoretical understanding of the forex fractal strategy in place, it is time to look at its application while trading.

In that regard, one excellent mode of doing so is by considering the Alligator indicator. This involves using moving averages as suitable indicators of the momentum the asset is likely to have as well as its direction. Depending on the way the fractals play out – in line with the bars in the center that are either up (bearish) or down (bullish) as described previously, we would look at gaining suitable valid signals for trading.

Fractal Indicator Explained

The above chart gives a great pointer towards upward reversal in the alligator’s path, below the 1.3090 mark.

Aspects to keep in mind while trading with fractals

A savvy trader does not simply incorporate trading strategies without looking into certain conditions which may have an impact on trades.

In the context of the forex fractal strategy, some important aspects to keep in mind include:

  • They should ideally be used in combination with other tools or indicators and not in isolation. In other words, they should not be the sole decisive factor in your trades. Instead, they should be looked at as “pointers” where fractals along with other tools or indicators together help you arrive at the best possible decision for your trades.
  • When it comes to reversals, longer time periods provide better insights. In this context longer time periods would be gauged from a higher number of fractal bars. So do not quickly surmise based on lesser number of fractal bars alone. Instead, look into wide-spanning time periods which will give you better reversal insights.
  • At the same time, fractals are indicators and not pointers of reversal lags; so you will get an idea of a reversal taking place, without actually knowing the actual extent of the same. For that you can look at other tools.

Conclusion

The forex fractal strategy is an ideal tool to get a sense of the direction the market is likely to take, based on pointers that are available. That way, better investment decisions can be made with greater ease. At the same time, as has been stressed upon throughout this article, look at them more as enablers rather than absolutes, i.e. make your trade decision based on a collective set of tools of which fractals are a part, instead of letting them be the sole decisive factor.


Claim Your $60 No Deposit Bonus Here

All you need is to have your live account verified!
Of course, you need to open a live account...

2 Brokers that we like A LOT!
USD30 from each Forex Broker Below.
Both Forex Brokers have excellent rating!

Broker #1

Broker #2

We use both of these brokers and proudly promote them!

NOTE: Not all countries qualify for these bonuses. Terms and Condition Applies.

Other Analysis Today
Learn and SHARE the Knowledge!
Click Here to Leave a Comment Below 0 comments
Advanced Forex Strategies