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Forex Fractals is an indicator used in the Forex technical analysis. It shows the highest high and lowest low of price movement on a chart. Fractals in Forex provide free Forex trading signals.
Description of Fractals
Originally, fractals are a form, which upon division into parts represents a small copy of the whole, that is to say, have the feature of self-resemblance. The term Fractals was introduced by mathematician Benoît B. Mandelbrot in his book "The fractal geometry of nature" (Img. 1).
Image 1. Mandelbrot's Fractal
Forex Fractals represent the pattern reflected in the form of house above or under a candle. They are formed by the combination of five Japanese candles (bars). Upon that, a median candle must have the highest (among the High) High or the lowest (among the Low) Low against two neighbor candles to the right and two candles to the left (Img. 2).
Image 2. Fractals Indicators
Bill Williams is considered to be an author of the Forex Fractals. He mentioned that there are some variations of this indicator, for example, that it is possible to set more or less than five candles. Highs (or Lows) of bars must not necessarily descend from the central by degrees, but can simply be below (or above). If Highs (or Lows) of two (central and right) bars are equal, then the right High (or Low) is not taken into account.
Application of Forex Fractal Trading Strategy
Forex Fractals show Low and High of the price on a chart and is applied in a "breaking" strategy when the price leaves frames of Fractal. In order to get trading signals, Forex Fractals trading system as a rule should be combined with Alligator Indicator which was also developed by Bill Williams. Here are the basic rules according to his theory:
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Fractals is effective as Forex signals, if they are formed beyond Alligator's jaws.
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A Forex signal for buying is the Fractal formed above “Alligator's teeth”, exit should be made according to the price of the highest maximum of five previous bars (Img. 3)
- A Forex signal for sale is the Fractal formed under “Alligator's teeth”, exit should be made according to the price of the lowest minimum of five previous bars (Img. 4)
Image 3. Fractals Indicators, the Forex signal for buying
Image 4. Fractals Indicators, the Forex signal for sale
While trading with Fractals, a trader should take into account the following factors:
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Fractals provide free anticipating signals in Forex;
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A trader always should open a position towards the Fractal;
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Fractal Forex trading system gives just a signal to enter the market, therefore, a trader needs to wait for its confirmation, using other methods of technical analysis;
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A trader using the Fractal Indicator strategy, should remember that Fractals are not used to define points for leaving the market.
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