Fractal Trading Strategy: How It Works?
Every trader wants to maximize his/her earnings. That’s why different strategies are developed. While some of them don’t have much sense, others are efficient indeed. One of the strategies that help to increase the earnings is fractal trading Forex strategy.
This is a strategy that is becoming widely used by short-time traders. This strategy is not too complicated but still requires some specific knowledge. Traders apply within the Fractal trading Forex strategy two patterns:
- Reversal patterns;
- Multiple timeframe analysis.
Now, some words about each of them are needed.
The term for analysis in this strategy is a five candle trend or a five bar reversal pattern. For bullish trend the pattern shall look in the following way:
- The first and the second bars or candles` lows are lower than the lows of the next candle;
- The lowest lows are attributes to the third bar or candle;
- Finally, the fourth and the fifth bars or candles have the highest lows.
This pattern indicates that the current trend is about to end. Thus, for a trader, it is an indication either to exit the current short position or to enter a new long position.
It is not recommended to use fractal patterns alone to make trading decisions. Like any other strategy, a Fractal shall be combined with one or even with several other strategies. Everybody knows that there are false signals. And the application of several strategies simultaneously helps to detect and to avoid them.
Now, let us have a look at the pattern when the bearish movement is observed.
- The first & the second candles have lower highs comparing to the next candle;
- The third candle has the top high;
- The fourth and the fifth bars/candles have lower highs than the previous third candle.
A bullish pattern signals that the uptrend is going to end. For a trader, it is a signal to enter a short position.
Fractal patterns are normally combined with RSI or stochastic. If all of them show the same, a trader can start buying or selling.
Multiple Timeframe Analysis
A multiple timeframe analysis is one more way to interpret fractal analysis. In this case, traders use fractioned time periods to understand the market better.
A trader might use a longer timeframe, say, one week, to learn the general situation on the market. Then, he/she might change to a smaller timeframe, say, one hour or even some minutes, to adjust the entry and exit points.
A Fractal strategy is complex enough. It is impossible to explain all the details quickly. However, it is worth mentioning that in the combination with one, and better with two more strategies, it can help you to understand the situation in the market better and make a profit.
Now, you know that there are two different concepts related to fractals, and they are not connected one with another. So, what about learning more about this strategy? It is not complex like many other strategies are, and it works.