Fractals indicate natural resistance and support levels, which helps to identify good entry points and locate stop-loss points. How to use fractals forex importantly, fractals help me identify trends and ranges. Fractals can be used effectively in forex trading, especially with the power of a mechanical trading system.
USD currency pairs gives the best results. A fractal is a repetitive natural patternA fractal is a geometric shape or set of self-similar mathematical patterns found in nature. When broken into smaller pieces, fractal shapes exhibit the same shape or characteristics of the larger object. Likewise, many mineral and crystal forms exhibit similar patterns on both large and small scales. Price movements in marketplaces are often thought to be random and chaotic. Yet, as with other seemingly-random forms found in nature, fractal patterns can be observed in price charts of forex pairs and other assets.
Forex price movements show certain repetitive fractal patterns which can be profitably traded. Fractals used in forex trading may show the same form at every size scale, or they may show nearly the same form at different scales. Stated simply, in forex trading a fractal is a detailed, self-similar pattern that repeats itself, often many times over. The distinguishing characteristic of fractals in forex trading and elsewhere is their natural organic scaling when contrasted with ordinary geometric figures. For example, doubling the length of one side of an ordinary geometric square will scale the area of that figure by four, since the square has 2 sides, and 22 equals four. In contrast, when the one-dimensional lengths of a fractal are doubled, the space contained within that fractal scales up by a number that is not a whole integer.
Once these trends are visible, it’s easy for my automated trading system to take advantage of them. I use them together with momentum indicators. How do fractals help with forex trading? Fractals predict reversals in current trends. Stated differently, when the forex fractal pattern shows the highest high at the center, and there are 2 lower highs positioned at each side, it signals a bearish turning point. And, when the pattern has the lowest low at the center, and there are 2 higher lows positioned at each side, it signals a bullish turning point. Fractals are lagging indicators, so a mechanical trading system can’t act on them until they’re a couple of bars into the reversal.
Still, since most of the significant reversals last for multiple bars, the trend usually continues long enough for me to trade it. Fractals work best for forex trading when used together with a momentum indicator. Along with fractal indicators, I also use an oscillator such as the CCI indicator to facilitate entering a forex trading position as early and safely as I can. Alligator indicator lines confirm the direction and presence of a trend. Specifically, the Alligator indicator consists of 3 smoothed moving averages.
Carrying the metaphor further, it can be said that when the 3 balance lines are intertwined or converged, the Alligator is asleep with its mouth is closed. This indicates that particular forex market is trading in a sideways range. Once satisfied, the Alligator’s mouth closes and the creature returns to sleep. The Alligator fractal indicator shows trends in the following way: When the price is trading above the mouth of the Alligator, i. Conversely, when the price moves below the Alligator’s mouth, and the blue line is over the red line which is over the green one, and all three of the balance lines are above the price line, then the indicator signals a downtrend. Finally, once the fractal forex trading Alligator has sated itself, the green, red and blue balance lines once again converge and cross over, signaling the end of the trend. At that point, my mechanical trading system takes profits, and then begins to watch for the next fractal forex trading opportunity.
Likewise, my sell rules are only confirmed if they signal above the alligator’s teeth. As well, I double-confirm the validity of Alligator signals by using the CCI oscillator. The lips, depicted as a green line, shows a Smoothed Moving Average containing 5 periods, moved 3 bars into the future. Forex markets show many false trends.