Fractal Indicator

What Is a Fractal?

The fractal indicator depends on a simple price pattern that is frequently seen in financial markets. Outside of trading, a fractal is a recurring geometric pattern that is rehashed on all time periods. From this concept, the fractal indicator was contrived. The indicator confines potential turning points on a price chart. It then attracts arrows to indicate the existence of a pattern.

The bullish fractal pattern signals the price could move higher. A bearish fractal signals the price could move lower. Bullish fractals are marked by a down arrow, and bearish fractals are marked by an up arrow.

The Formulas for Fractals Are:

$\begin \text =\ &\text ( N ) > \text ( N - 2 ) \text \ &\text ( N ) > \text ( N - 1 ) \text \ &\text ( N ) > \text ( N + 1 ) \text \ &\text ( N ) > \text ( N + 2 ) \ \end$
$\begin \text =\ &\text ( N ) < \text ( N - 2 ) \text \ &\text ( N ) < \text ( N - 1 ) \text \ &\text ( N ) < \text ( N + 1 ) \text \ &\text ( N ) < \text ( N + 2 ) \ \end$
$\begin &\textbf\ &N = \text{High/low of the current price bar} \ &N - 2 = \text{High/low of price bar two periods} \ &\textN \ &N - 1 = \text{High/low of price bar one period} \ &\textN \ &N + 1 = \text{High/low of price bar one period} \ &\textN \ &N + 2 = \text{High/low of price bar two periods} \ &\textN \ \end$

Step by step instructions to Calculate the Fractal Indicator

Calculating fractals has more to do with visual keenness than math.

1. Disengage a high/low (N) point on the chart.
2. On the off chance that there are two lower highs to one side of the high or two higher lows to one side of the low (N-2 and N-1), there is a potential pattern. The pattern actually needs two additional bars on the right to confirm.
3. In the event that two lower highs happen after the high, a bearish fractal is complete (N+1 and N+2). On the off chance that two higher lows happen after the low a bullish fractal is complete.

Everything the Fractal Indicator Says to You

The fractal indicator will generate signals frequently. The existence of a fractal isn't necessarily important since the pattern is so common.

The fractal is indicating the possibility of a trend change. This is on the grounds that fractals are essentially showing a "U-shape" in price. A bearish fractal has the price moving vertical and then downward, forming an upsidedown U. A bullish fractal happens when the price is moving down however at that point begins to climb, forming a U.

Since fractals happen so frequently, and many of the signals aren't dependable entry points, fractals are regularly filtered using another form of technical analysis. Bill Williams likewise invented the alligator indicator which detaches trends. By combining fractals with trend analysis, a trader might choose to only trade bullish fractals signals while the price trend is up. Assuming the trend is down they might take only short trades on bearish fractal signals, for instance.

Fractals could likewise be utilized with different indicators, for example, pivot points or Fibonacci retracement levels. A fractal is only followed up on the off chance that it aligns with one of these different indicators and potentially the longer-term price direction. For instance, expect a stock is trending higher. The price is pulling back and reaches a half Fibonacci retracement level. Since the trend is up, and the price is near a Fibonacci retracement level, the trader will take a trade on the off chance that a bullish fractal forms.

The Difference Between the Fractal Indicator and Chart Patterns

The fractal indicator is unique in that it identifies a price pattern and marks it on the chart. Fractals are specific five-bar patterns. Chart patterns can likewise be drawn on the chart, despite the fact that they are not limited to five price bars. Well known chart patterns include wedges, banners, and head and shoulders to list a couple. While some software will mark chart patterns on a chart, most chartists find and seclude chart patterns the hard way.

Limitations of Using the Fractal Indicator

The main problem with fractals is that there are such large numbers of them. They happen frequently and trying to trade every one of them will quickly exhaust a trading account due to losing trades. These are called false signals or whipsaws. Consequently, filter the signals with another indicator or form of analysis.

The arrows for the indicator are commonly drawn over the high or low point, which is the middle of the fractal, not where the fractal completes. In this manner, the arrows can visually trick. Since the pattern is really completing two bars to the right of the arrow, the most readily accessible entry point in the wake of seeing an arrow is the opening price of the third bar to the right of the arrow.

Highlights

• A bullish fractal happens when there is a low point with two higher low bars/candles on each side of it.
• An up arrow marks the location of a bearish fractal, while a down arrow marks the location of a bullish fractal.
• If someone somehow managed to trade fractal signals, the entry would be the open price of the third bar after the arrow.
• Arrows are drawn above or below the middle bar (high or low point), even however the pattern is five bars. It is basically impossible that a trader could enter a trade at the arrow in light of the fact that the arrow only happens assuming the next two bars make the pattern.
• A bearish fractal happens when there is a high point with two lower high bars/candles on each side of it.