Fractal Indicator is a really basic tool for the analysis of the forex market, it aims to recognize the different variations of prices, being able to trace a pattern, allowing to identify the trend and predict reversal points.
The main advantage of fractal indicator is to unequivocally show the best moment to enter the market. It is recommended to wait a while after the fractal appeared before placing an order. The fractal can also be applied to take profit on reversal movements in the opposite direction. However, there are many forex trading strategies that can be developed with the help of fractals.
Fractal Trading Signals
Graphically, fractals usually consist of groups of five or more bars. In order to perform a systematic analysis, the main trend is broken up in many sigle parts until you get to the simple “Patterns of Reversal“. Technical rules to identify fractals are as follow:
- A Negative Reversal occurs when the pattern is formed like this: the highest rate reached by the price in the middle and two lower high by both sides.
- A Positive Reversal occurs when the lowest minimum is located in the middle and 2 lower lows by both sides.
How to Use Fractal Indicator
Fractal Indicator, when used alone could lose much of its forecasting potential. Like any other forex indicator, it ensure a greater profit if matched to other technical tools for market analysis (such as the standard deviation or the indicator alligator, as described by Bill Williams in his book “Trading Chaos“). It is really reccomended to use this indicator to trade the medium-long term period rather than shot-term.
Basically, Fractal Indicator is used in technical analysis for:
- To identify breakouts
- To recognize a new trend formation or confirm a current trend in the market.