Indicator Fractals: description of settings and logic of the instrument

Fractal is a program that monitors and shows traders local peaks and bottoms on a price chart. On IQ Option platform, instrument is displayed in red and green marks of arrows form.

In 1995, world-famous trader Bill Williams developed indicator Fractals: author of several best-selling books on trading theme and technical instruments, including Alligator, AO, Accelerator Oscillator, etc.

Fractals is a relatively young indicator, but has already earned recognition of many users. Thanks to this, it now exists among classic analysis instruments on most trading platforms, including IQ Option.

Fractals in chart

Fractals in chart

How to configure and add Fractals to chart?

Trader needs to perform the following actions to start applying indicator in trading room of broker IQ Option:

  • to click on technical indicators menu (icon is located in lower left corner in trade room);
  • select Fractals in analysis instruments menu.

Adding Fractals to chart

For user, the instrument settings window opens, in which only one numerical variable (period) and two graphic configurations (colours) will be presented.

Fractals indicator settings window

Period is number of candles which the indicator should analyse, that is time interval during which instrument will search for local minimum and maximum.

Traders can choose and test different settlement period values depending on the selected trading approaches and time frames. This parameter must have an odd value, because at least one candle from selected period will show local bottom or peak on chart. For example, five candles (as set by default), among which the third (average candle) will be highest/low.

Five candles are optimal value for inexperienced users, which is confirmed by developer. But if a trader wants to filter out inaccurate signals, then he must increase the billing period (for example, set value to 11 candles).

A visual comparison of Fractals indicator with periods of 5 and 11 candles

By default, the arrow-pointer of local maximum is green, of local minimum is red. But users can take convenient colours for elements of indicator thanks to graphical options available in the Fractals settings.

How to trade with Fractals?

Author’s strategy of breakthrough is the simplest way of trading applying Fractals in its pure form. There are following trade signals interpretations:

  • when the price rises above the previous bullish fractal, for user it is a buy signal (this is a breakthrough of buyers);

The breakthrough of buyers

  • user needs to sell, when chart falls below the previous bearish fractal (this is breakthrough of sellers).

The breakthrough of sellers

Formation of next maximum or minimum on chart serves as a signal for closing deals.

Summary

This article presents general knowledge about the technical indicator Fractals. Today, traders almost do not use this instrument in its pure form, because in itself it gives a lot of false signals.

There are many trading strategies applying Fractals as a logical complement in the scope of trading and financial analysis. To successfully trade with Fractals indicator, many traders tend to use a trend indicator (for example, Alligator, MA, Parabolic SAP) and/or an oscillator.

In addition, users who choose to add Fractals indicator to trading arsenal are advised to try instrument in different markets and timeframes applying demo account function. Thus, a trader can get not only useful skills when working with new instruments, but also save deposit.

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future

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