Fractal forex trading strategy

If you have any questions or suggestions you are welcome to join our forum discussion about Trading Forex Using Fractals. The current article will acquaint you with a very reliable trading strategy based on the fractals indicator, whose role is to help predict potential price reversals. In our case, a broken fractal indicates that the price might continue to move in the same direction.

A fractal can be broken by both the body or the shadow of a bar which formed later. Also, it is very important to know that a fractal is confirmed valid only if two strategy form and close after it, fractal it could disappear.

For this strategy we will be using the concept of multiple time frame analysis, which is based on determining the general trend on a higher time frame and then dropping to a smaller chart to find the best possible entry points.

In our case, we choose to determine the larger trend on the 1-hour trading frame. Keep in mind that it is not the arrow itself that needs to be broken, rather the high or the low of the bar which is marked by it. Also, it does not matter whether the broken fractal is positioned before or after any other opposite fractals — if an up fractal is before a down fractal, but it gets broken and the down fractal remains intact, this indicates that the trend is up.

Check out the following screenshot. We have marked the last three fractals. The first fractal was up, while the second was down and the third was up. However, like we said, the order of formation is not fractal, rather which fractal was broken last. As you can see, the fractal at bar 1 was broken first by bar 3but the price then reversed and edged lower, breaking the down-fractal at bar 2.

And forex bar 2 was the strategy broken fractal, it implies that the market is headed downwards. Having determined the general trend on the higher time frame, you should now switch to a lower time window to receive more accurate entry signals — we will use the minute chart. We already know strategy previous articles that the best place to enter in the direction trading the trend is at the end of a pullback.

Having learned from the 1-hour time frame that the market is moving down, as we drop to the minute time frame, we should wait for the price to trading a move against the larger time-frame trend, thus rise, and then go short.

We need to wait for a minute fractal to form in the opposite direction of the hourly trend and as soon as it is broken, we can strategy to enter in the direction of the larger forex. Bear in mind that this could take some time and you need to keep track of the general market conditions. In case the larger-time frame conditions do not change, we remain in waiting mode for a counter-trend fractal to form.

Since we used strategy downtrend for our example, we need to wait for an Up-fractal to form and to get broken. As soon as that happens, we fractal proceed with initiating a trade. The market must be entered on a pending sell stop order the same direction of the general trend. If you are already in position, you should close it before the data is released. Your profit target should be the next pivot point beneath the forex level, or if it is too close to it less than 10 pips — the next pivot point.

Since we are entering short, our profit targets would be the pivot support levels. See the example below. The yellow rectangle represents the minute breakdown of bar 3 on the first screenshot. Once we have dropped down to the minute chart, and we trading that the general trend direction is bearish, we want to wait for the break of an Up-fractal. The first Up-fractal was formed at bar 1but it strategy not broken. A second Up-fractal occurred at bar 2 and this time it was broken, at bar 3 at 1.

Next, we proceed with placing our pending sell stop order, our stop-loss and profit-target. We will need forex enter at the low of the most recent down-fractal bar, trading visualized by the green horizontal line at 1.

Our stop-loss strategy placed several pips above the high of the bar with the broken Up-fractal or just at fractal top of the fractal itselfmarked with the red horizontal line at 1.

Having done the math, we determine that the central pivot point is at 1. Thus, in case fractal are holding a forex open at that time, your profit target will need to be adjusted accordingly. Because your sell stop order is pending and it will take time to get filled, market conditions can change in the meantime which will require certain actions to be taken. Also, if the forex initially moves up, then moves back down and forms a new Down-fractal before your initial pending order is triggered, you need to move the order to the low of the new Down-fractal bar, regardless if it is above the old one.

Once your sell stop order has been triggered and you enter the market, you need to trail your stop-loss as the price moves in your favor. The rule is to trading your stop-loss to the tip of the next Up fractal which forms beneath the initial broken Fractal. If a higher Up-fractal forms, you need to ignore it.

You need to continue doing so until either your profit target is reached or the latest stop-loss has been hit and you exit the market. Founded inBinary Tribune aims at providing its readers accurate and actual financial news coverage. Our website is focused on major segments in financial markets — stocks, currencies and commodities, and interactive in-depth explanation of trading economic events and indicators.

Trading forex, stocks and commodities on margin carries a high level of fractal and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite.

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Fractal Breakout Stragety - by Bill Williams Part 1