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Fractals is a technical indicator developed by the famous stock trader Bill Williams, which allows you to determine the bottom or top on the chart of the financial instrument in question. It was he who introduced the concept of fractal into trading in his book Trading Chaos, compiling an indicator based on fractals and calling it Fractals of the same name.
This indicator indicates the minimum and maximum reached by the market for a certain period, visually highlighting them with directional pointers depending on the type of extremum (fractal bottom - red pointer pointing down, fractal top - blue pointer pointing up). The Fractals indicator is superimposed directly on the price chart of the analyzed active.
- A fractal up is formed when, in a combination of at least five Japanese candles (or bars), the middle candle (bar) has the largest maximum.
On the chart, fractals are marked with up or down arrows, respectively.
The author of this indicator draws attention to the fact that it is not necessary that there are five Japanese candles or bars and that for the fractal upwards, the highs starting from the central (highest) bar are gradually decreasing.
Another optional condition is that the central fractal upward has a minimum, like a maximum, that is higher than the others.
The author in his theory added one more clarification - if two Japanese candles or two bars in the formation have maximums and both of these maximums are highest, then the second maximum is not taken into account when calculating fractal trading.
The same rule applies for the fractal down.
Using the indicator in practice
- A breakthrough of buyers in Bill Williams theory is considered to be the output price for the redistribution of the fractal up by at least one point.
- A breakthrough of sellers is considered to be a price drop beyond the fractal by at least one point.
- According to the classical theory of Bill Williams, a fractal is used for a breakthrough strategy, despite the fact that there are counter-trend strategies in technical analysis.
- A breakthrough of buyers or sellers is an immediate trading signal.
- A buy order is placed slightly above the fractal up, and a sell order is placed slightly below the fractal.
Using this indicator's strategies, a stop loss order is placed at the most distant fractal extreme of the last two fractals directed in the opposite direction. As a rule, this is the penultimate opposite fractal.
Conclusion
Fractals is an unusual and useful technical analysis tool for identifying market trends. With it, you can build amazing and profitable trading strategies. You can find some of the ready-made proven strategies on our website in the Strategies section.
Download Bill Williams’ Fractals MT4 indicator below
Tip: Can’t open the downloaded archive file (ZIP or RAR)?
Try WinRAR for Windows or The Unarchiver for Mac .
Do you need help with installing this indicator into MT4 for Windows or Mac OS? Our guide HERE will help you.
