Have you always wanted to know the best way of using fractals in forex trading but not sure how to?
If so, then you’re in the right place!
What is that optimal strategy to look to use fractals in trading?
Using fractals in Forex trading is designed to align you with the trend. Using the fractals indicator can quickly identify fractal highs and lows that may be of significance. From these a trader can obtain signals designed to align them with the directional flow of the market. Using fractals in Forex trading can be applied to a breakout, swing trading and trend following strategies.
How do fractals work in trading?
Fractals are indicators on candlestick charts that identify reversal points in the market. Traders often use fractals to get an idea about the direction in which the price will develop. A fractal will form when a particular price pattern happens on a chart.
What is fractal trading?
Fractal trading is basically when you use a five bar reversal pattern and are one of the most basic repeating patterns and trends within the Forex markets.
Fractals can be applied as a trading indicator, which means traders do not need to hunt for a pattern and loose time. Some traders like to use fractals as part of a confirmation with areas such as; supply and
demand, trend lines and support and resistance.
The one drawback for using fractals in Forex trading is its a
Using a longer time frame will reduce the number of fractal signals on your charts. This will give your charts a cleaner look and will give you more of a chance of seeing trades. A fractal indicator works with any time frame and on any market.
The two perfect fractal patterns known are the bullish and the bearish fractals.
- a bullish fractal: The market is an uptrend and you are looking to buy.
- a bearish fractal: The market is a downtrend and you are looking to sell.
A perfect example of what a fractal would look like on a trading chart is show below.
Here is a summary of the fractal reversal patterns
- The patterns are made up of five bars or candlesticks.
- A bullish fractal shows that the downtrend has reached its end and there maybe a new uptrend occurring.
- A bearish fractal shows that the uptrend has reached the end and there maybe a downtrend occurring.
- A fractal is an indicator that shows future reversal points of the market.
- Fractal indicators can be used to established the direction of the market when the price breaks through the fractal high or low of the pattern.
- You can also use fractals to enable you to place stop losses.
Does fractal trading work?
The short answer is yes fractal trading does work, but not when used solely on it’s own, but part of a trading strategy.
A trader would benefit more with combining fractals with a strategy that follows the trend or a breakout trading strategy. Also combining fractals with technical analysis will greatly improve the odds of capturing winning trades.
You need to remember that fractals are a lagging indicator, and forgetting this crucial component with using fractals in Forex trading will be what makes or break your profitability.
How do you use fractals in Forex trading?
Fractals can be very useful when used with other indicators and techniques, but should not be relied on for success in trading.
One way of traders using fractals in Forex trading is by looking for broken fractals. A fractal is regarded broken when it has been confirmed when price breaks through either the high or low of the fractal pattern.
This type of method with using fractals in Forex trading would normally be associated with support and resistance trading. And known more as what is called a fractal breakout strategy.
1. Fractal breakout strategy
Using fractals in Forex trading can easily be applied as a breakout strategy. Simply you would be able to mark of a previous fractal high or low created in the market.
Where a trader would wait for that level to be broken and closed to identify a valid breakout.
There are a couple of different types of breakout trading techniques that could be applied. There is the one candle breakout strategy, which would be where price breaks a fractal high or low and retest the fractal on the next candle.
A retest in Forex simply refers to price reversing direction after a breakout and returning to the breakout level to see if it will hold.
This can be an area of support that became a resistance, and acts as a retest. It is at this area of the retest a trader should look to enter the market, in the direction of the breakout.
You can learn more on this type of trading by checking out another trading lesson based around this type of trading strategy by clicking here.
When using fractals in Forex trading, you can also use the fractal indicator as a trend reversal indicator. This simply would be looking for price to break and close a fractal high or low to confirm the reversal.
If you would like a fully working trend reversal indicator strategy using this type of trading then check out the video below now.
2. Swing trading strategy
You can also use fractals with Fibonacci retracement levels. This means there are horizontal levels on the chart that indicate where support and resistance are more likely to occur.
This type of strategy with using fractals in Forex trading is associated with a swing trading strategy.
To learn more on a Forex swing trading strategy, you can do so by clicking here.
A Forex swing trading strategy is a style of trading whereby a trader attempts to profit from the price swings in the market.
These positions are usually open from a few days to a few weeks at a time. Swing trading is a fundamental type of short-term market speculation where positions are held for longer than a single day.
A trader would be able to use the fractal indicator to confirm the swing points in the market. Allowing the trader to pinpoint the swing high or low when searching for a swing pullback entry.
3. Trend following strategy
When using fractals in Forex trading, they can be applied to a strategy such as a trend following strategy. A trader would be able to determine the trend by using the fractals on their charts.
Fractal trading is designed to align you with the trend. The fractals indicator on a price chart will quickly identify fractal highs and lows. That may be of significance to a trader, and from these a trader can obtain signals designed to align them with the directional flow of the market.
With using a trend following strategy, the fractals would show a trader if the trend is bullish. By identifying higher highs and higher lows in the market. See below an example of how you could use fractals to identify an up trending market.
The opposite is true for a down trending market, fractals can show a bearish trend by identifying lower highs and lower lows in the market. See an example of how you could use fractals in Forex trading to identify a down trending market below.
A trader may wish to combine the trend following strategy with using fractals in Forex trading with a swing/breakout trading strategy. This would likely improve a traders potential results in the market.
Fractal trading system that really works
When it comes to using fractals in Forex trading. A trader may wish to combine different strategies with using fractals. To allow a trader to develop a fractal trading system that really works.
As well as applying different strategies to use fractals as a trading strategy, you may also want to use fractals as a way of technical analysis.
Using fractals in Forex trading for technical analysis, would allow a trader to fine tune a entry with their strategy. One of the most used techniques of applying fractals for technical analysis is combining fractals with trend lines.
To learn more on 3 methods of using fractals in Forex trading check out this video covering the top 3 techniques you could apply to your trading.
Remember fractal trading is basically when you use a five bar reversal pattern and are one of the most basic repeating patterns and trends within the Forex markets.
Also using fractals in Forex trading can be applied as a trading indicator, which means traders do not need to hunt for a pattern and loose time.
Unfortunately the one drawback for using fractals in Forex is its a
lagging indicator. Which means you can not rely solely on using the fractal indicator to trade with.
Fractal trading does work, you just need to remember the fractal indicator should not be relied on for success in trading.
You can use fractals in Forex trading, with a breakout, swing and trend following strategy. And if you really want a fractal trading system that really works. You just need to combine your strategy with technical analysis.
Using Fractals In Forex FAQ
- Identify major trend direction on a daily chart
- Use a 1-hour chart to identify entry and exit points into the market
- Entry signals on the 1-hour time frame must only be considered if they align with the trend deduced from the daily chart
- Signals against the trend identified on the daily time frame are not signals to trade against the trend but rather a suggestion to exit existing positions
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