VIDEO LESSON - Introduction to Fractals

1. Fractals are five candle reversal candlestick patterns.
2. They are lagging indicators.
3. Should be used in conjunction with other indicators.
4. Standard technical analysis rules apply: longer timeframes tend to be more accurate, and use of multiple timeframes can help reduce false signals.

5. Ultimately, fractals are basically the same concept as swing points.

How Traders Can Use Fractals

Volatility is a key determinant to trading opportunities. One of the common triggers that volatility is in play is when a prior high or low is taken out and a new trend begins. Fractals can be applied to the chart so that you can see when a recent key level has broken which can lead to a price-action trading opportunity.

Fractals revolve around price action highs and lows and can easily pinpoint places for a breakout entry or tight price action based stop. Fractals can be used in a variety of ways. Most commonly, traders will look for a bar to close above a prior up fractal to show an upside breakout or a close below a prior down fractal to signal a downside breakout that is potentially worth trading. Another positive aspect is that when you have a comfortable view of a strong trend in play, you can use fractals as a trailing stop from a prior counter-trend move which made a fractal.

Every trader should embrace the following seven words: I don’t know what will happen next

This isn’t meant to disregard your analysis but tell a simple fact about trading. Anything can happen in the market place and an infinite number of possibilities are plausible. As a trader, we can develop a strategy with set rules that work with our psychology to give us an edge but it will not predict the future. Therefore, we can use fractals as a trigger to put us into a trade or out of a trade and we may not know if the trade will end in a profit but we can now that we’re only acting on objective evidence.