Fractal: A Simple and Usable Indicator in Trading Forex

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The word ‘fractal’ was introduced by Benoit Mandelbrot in 1975. This word came from the word ‘fractus’ which is meant ‘broken’ or ‘un-patterned’. Fractal is a top or bottom point where the price is about to turn back. It’s a simple and usable indicator. In forex trading, fractal indicator helps traders to identify the highest price points and the lowest price points by drawing a trend line.

If you are a PAMM trader and you want to use this indicator, you have to make sure that there are five candle bars in a row where the middle bar is in the highest or lowest position among the four others in its left and right side. The highest point indicates a buy signal, while the lowest point indicates a sell signal.

If the market price passes the ascending fractal, this can be considered as a buy fractal. In the other hand, if the market price passes the descending fractal, you can consider it as a sell fractal. But please remember that only a fractal which came after the other contradictory fractals, can be considered as a signal fractal. We can use this fractal to determine stop loss point.

In the rising market, we will find that there will be more broken fractals than the low fractals. This goes the same way if the market falls down. There will be more broken fractals than the high fractals. The signal fractal will remain as a signal until it failures or if there is a new fractal comes up. If the price movement fails to break the opposite fractals, it will lead us to a trend consolidation. It’s better for traders to wait until the new fractals formation is being created or if there is a new breakout.

As Bill William says in his Chaos Theory, to maximize the use of fractal indicator, it’s recommended to filter out fractal with Alligator indicator. The rules are:

  1. If the buy fractal is beyond the Alligator’s teeth, trader must put an imminent order buy a few points above the maximum buy fractal.
  2. If the sell fractal is lower than the Alligator’s teeth, trader must put sell stop order a few points below the lowest sell fractal.
  3. No buying action if the fractal is formed below the Alligator’s teeth.
  4. No selling action if the fractal is formed beyond the Alligator’s teeth.

Okay, that’s all about fractal indicator. You may think to use this simple and usable indicator to help you doing your daily trades to gain your biggest profit.

Happy trading in PAMM Investments !

Don’t forget to read this important article for PAMM trader

1. How to become a PAMM Trader

2. Understanding your Forex Trader Level as PAMM Trader