Fractal Pattern Indicator
A fractal pattern is a frequent pattern in which the same configuration occurs across the structure, on a variety of different scales.
The Basics of Fractal Pattern
Williams said that a fractal pattern on a bar chart was made up of a minimum of 5 consecutive bars. An initiating fractal must have a middle bar that has a bigger high or lower low, compared with the 2 preceding bars, and the 2 following bars.
A fractal is like a mini-reversal. It points up a potentially important high or low. Do not let the up and down names confuse you -some mark these patterns as Bearish or Bullish, but the truth is that they are neither naturally Bearish or Bullish. It only becomes Bearish or Bullish if the market behaves a specific way.
The Bill Williams fractals indicator is one of the basic tools that come packaged with the MT4 platform.
Using the Forex Fractals Indicator in MT4
You can locate the fractals indicator within the ‘Bill Williams’ folder in MT4’s ‘Navigator’ tab.
Clicking on ‘Fractals’ launches the dialogue window for the fractals indicator. Now, the aim of the fractal indicator is simply to recognize the standard, recurring patterns defined by Bill Williams. This means there are no variables to set when you launch the instrument.
The only choice relates to the cosmetics for the indicator .. it means a choice of how big to make the markings for the MT4 fractals, and in which color they should appear.
We need to look at the series of fractal Forex Patterns together..in order to identify trends, and then eventually decide on a trade to make thereafter. Applying The Fractals Indicator meaningfully requires a bit of knowledge of Bill Williams’ trading rules.
Rules for Trading with the Forex Fractals Indicator
Williams’ rules for fractal trading include searching for definite formations that signal a trade. We want 2 adjacent MT4 fractals that are pointing in the facing direction to each other. The fractal start is any fractal followed by a fractal in the facing direction. The signal is the direction of the 2nd of these 2 fractals.
We are concerned with the level of the highest bar. In a down fractal, we are concerned with the level of the lowest bar. Most important of all, we trade on the signal if the market moves beyond the High or the Low of the fractal signal. Another term Williams explained was the fractal stop, which is the furthest point from either of the past two fractals, that is in the facing direction to the signal. When trading on a fractal signal, Williams recommended putting a STOP only beyond the Fractal Stop.
The basic trading rules include:
To trade in the direction of the Fractal signal after it begins
But if the market resumes in the signal direction, and then breaks beyond the level of the fractal signal
To put a Stop-Loss to close a trade, guided by the level of the Fractal Stop
So these are the fundamental trading rules provided by Bill Williams, but are there any pitfalls? There are, of course. No indicator is ideal and the Fractals Indicator is no exception. For example, the indicator gives a large number of fractal signals, and a lot of these will be false. Randomly trading on all of these will give poor results. The best Fractals Indicator performance will come when you merge it with other trading instruments, in order to tighten up trading signals.
The best way is to merge the Forex Fractals Indicator with another one of Bill Williams’ inventions, the Alligator Indicator.
For example
a potential method would open a trade when the Fractals and Alligator Indicators agreed on a trend direction. Alligator Indicator helps you to keep a position while the market is still trending in your favor. Another union use is to keep a position open as long as the ‘jaws of the alligator are open and it is still feeding’.
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