Forex fractals are used for technical analysis in forecasting price dynamics. The first researcher of the potential and the value of fractals was Dow. He displayed the dynamics of prices in the market with the help of a chart, on the basis of which he noticed that the figure displays geometric figures.
Fractals by Williams
The discovery has been around for many years, but it has not been used for a long time in practice. Popularity fractals were acquired, thanks to the book “Trading chaos” by Williams. The author explained the meaning of fractals in understandable language.
After the book was published, the use of fractals in combination with indicators began in performing trading operations in Forex. According to Williams, fractals are 5 candles (bars). Such an arrangement is assessed at different scales. According to the researcher, financial markets are dependent on the trends that are displayed in forex fractals.
Traders should analyze the trend displayed in fractals. Based on the analysis, you can build a line of behavior in the foreign exchange market. The purpose of the fractal is to indicate the maximum and the minimum of the price. The indicator shows the levels of price change in another direction. Then we should deduce the rule that the price level is higher than the “Bull” fractal or below the “Bear” testifies to the strength of the market. At a similar time, it is most profitable to enter the foreign exchange market. This case is the most popular use of fractal.
This indicator also determines:
- the level of resistance or support;
- it is possible to forecast trend lines. To do this, you need to find important highs and lows of the foreign exchange market;
- this indicator can confirm the trend;
- fractal signals the consolidation in the market.
If the price is not able to overcome a minimum or a maximum, then the so-called “flat motion” begins. Consolidation will take place only in case of not overcoming the price of the opposite fractal. Consolidation is observed until the next market penetration of the price level. As noted by B. Williams, the fractal refers to 5 indicators of the market. This indicator should be used together with the indicator “Alligator“.
Consider the use of a combination of these financial indicators. If the fractal is positioned above the red line of the Alligator indicator, traders should place a buy order above the indicator. And, on the contrary, if the fractal is located below the “Alligator” peaks, then traders have to sell a warrant below the fractal.