A fractal (by Bill Williams) is the formation of five candlesticks (bars), in which the average candlestick has the highest high (lowest low).
This indicator draws the fractal arrow based on three candlesticks only (not five).
Author: Nikolay Kositsin
Forum on trading, automated trading systems and testing trading strategies
newdigital, 2013.12.16 11:23
The Fractal Indicator
The fractals are technical indicators, part of the Bill Williams’
indicators. Unlike any other indicators, this one is not a line or
histogram bars; it is just a simple arrow on top of or below the bars of
the price chart. These fractals are formed when five consecutive bars
align in a strict manner. There are two types of fractals:
Bearish fractals: this fractal forms over a bar in the
price chart, only if the high of this bar is higher than the high of the
previous two and next two bars. In real-life trading this fractal
indicates a possible bearish movement.
Bullish fractals: this fractal forms below a bar in the
price chart, if the low of this bar is lower than the low of the
previous two and next two bars. When you see this fractal, you should
expect a bullish movement.
It is important to mention that the Bill Williams’ fractals are
illustrated a bit late on the chart, because you need the fifth bar to
close, in order to determine the highest high or lowest low. The
fractals are trading signals, but they are far too insufficient to count
on them alone: the buy fractal indicates a possible buy order and vice
The fractals point out the strong levels. You can easily draw a line
to connect multiple fractals to form either a resistance or a support
line. These levels work exactly the same as the trend lines. If you take
a look at the image, you will see the resistance line and the buy
signal. We get this signal, because the price breaks the strong
resistance level. However, if you take a close look at the chart before
this moment, you will see a couple of sell signals. This clearly points
out how inconclusive are the fractals alone.
If you have paid attention on the Trend Lines page, you already know
that some traders use the fractals to build their trend line. We really
like this strategy, but it is not something revolutionary.
Bill Williams’ fractals and Alligator indicator. These two indicators
share great synergy and we will take a quick glance in the image. It is
the same as the previous, but we have added the Alligator and this
changes the picture quite a lot. Take a look at the buy signal; do you
see now why we have not opened a sell order before the buy signal? The
price moved above the Alligator and we needed to see a breach of the
indicator’s levels and a couple of sell fractals, but did not see that.
Instead, the price kept on moving above the Alligator and it even broke
the resistance level, which gave us a clear idea of the future movement –
buy and take profit.