Fractal analysis and trading. What are fractals and how do I trade using them?
THIS IS A FRACTAL MAP. It’s a Daily EURUSD chart from a previous time in history with a Daily current chart overlaid on top. The white boxes ( cream in lower chart) and their significance I will explain later. The Black line is the 100 MA.
This is now the current Daily EURUSD chart without the historical chart underneath. The white line is the 100MA
As can be seen, the 100MA intersects the price action in very similar places. The cream boxes on the lower chart are where the fractal suggests current price action is going to go. It’s basically as simple as that. The fractal map “suggests” that price is going to follow a certain path and like roadmaps, there is sometimes more than one way to get to the final destination. This is true with fractals as you will have CB speakers and economic data along the way that may skew or spike the current price action in certain places but normally if you find a good fractal this will correct in time and it will fall back in line with old price action… I will explain some of my rules to trading fractals later on. Here is another example in another currency pair EURAUD and a 4 hr chart.
There are no hard and fast rules to trading fractals but I have a few personal rules that I have found to work very well.
Longer term Daily and 4 hr charts I will never enter a trade unless we are at a high or a low point in the fractal. That reduces my risk dramatically and ensures a greater risk to reward trade….just in case the fractal breaks. Lower time frame fractals such as on the 30 min and 15 min charts are excellent for scalping 10 pips here and there. Generally, I will have a core position from a Daily or 4-Hour chart and then scalp the smaller time frames for intraday pips.
I will never enter my first position with full size..always small size as that way it will be very cheap if I am wrong and the fractal breaks.
Longer term fractal trading I will never add to a winning trade on the first pullback as I want to see that the current price is still following the fractal. Once that is confirmed I will add on the second and further pullbacks until the particular run is over and we hit a low in the fractal. I will usually exit a trade at least 20 pips before the low comes in OR if we have a confirmation candle that shows the move is near its end…just in case it reverses early which can happen too. I will also adjust any stop loss I have in accordance as price moves in the desired direction ensuring fairly quickly a no loss trade. Fractals can be found in all currency pairs, in Equities and in Commodities and in all time frames.
This is just a small explanation as to how I trade in case some of you were wondering.
If you are interested in learning more please let me know on twitter.. @owsi1968
Obviously, trading involves high risk and nothing written above is intended to be taken as trade advice. It is what I do and everyone should find their own system and what works for them.