Many new entrants into the forex trading arena have had their money wiped off because of the single mistake of basing their investment on guesses. The Forex trading business is a fast-growing one, and a vast majority of new entrants continues to make the mistake of assuming that trading is based on assumption rather than a pattern. If you genuinely want to make a success out of the forex trade, then you certainly need to be guided, that is the essence of Fractal indicator MT4.
What is a Fractal Indicator MT4?
Fractal indicator MT4 are recurrent patterns during chaotic price movements in forex exchange trading and are used to predict reversals. The basic Fractals are represented by a minimum of five bars in the charts.
The Fractal indicator was created and promoted by Bill Williams; author of one of the most famous trading systems and the book “Trading Chaos”. This instrument as a forex indicator allows traders to detect local peaks on the chart.
Description of Fractal Indicator
Fractal Indicator MT4 is a composed of a system of at least five successive bars, which has the highest high in the centre, and two lower highs on both sides, this means a BUY fractal. Conversely, the reversing group is a series of at least five successive bars having the lowest low in the centre and two higher lows on either side, and this implies SELL fractal.
Typically, the fractals have Low and High values and are indicated by the down and up arrows.
Stock Markets are made up of trends and patterns, interpreted by statistics. Fractals help to break down significant trends into predictable, smaller trends; as a result, fractals determine the chance of a pattern continuing, moving downward or into an upward trend in the future. Using a fractal indicator can be even more powerfull with a price action indicator mt4.
How to Identify Fractals
A fractal is said to be bearish turning point occurs when there is a pattern with the highest peak in the centre and two lower highs on either side.
On the other hand, a bullish turning point is depicted when a pattern with the least low in the centre and two higher lows on either side.
How to Use Fractals for Trades/Investments
Although Bill Williams recommends the use of Fractals in combination with Alligator indicator, it has been proven that there however exist other methods of trading fractals which are quite remote from his suggestions.
For effectiveness, like most other trading metatrader indicators, fractals cannot be used alone, but rather are used together with other forms of technical analysis. Fractals are used in conjunction with o few online setups such as:
• The Alligator Indicator: Fractals are used in combination with the alligator indicator, which is created by moving averages based on fractal geometry.
The Alligator assists you to spot a real trend and stay out of trading headed toward a range, which always results in losses.
The Alligator as a Merger of Three Balance Lines
As a principle alligator operates as a combination of three balance lines:
Alligator’s jaw (the blue line), Alligator’s teeth (the red line) and the Alligator’s lips (the green line).
To build the Alligator in MT4, go to “Insert -> Indicators -> Bill Williams –Alligator” menu sequence.
When all three lines are entwined, the Alligator is asleep, and the market is range-bound. When the Alligator wakes up after a long sleep, being very hungry, it chases the price much farther. As a result, price movements are much stronger; when the Alligator is asleep, stay square.
Immediately the Alligator wakes up, it opens its mouth (Balance lines diverge) and begins to hunt. However, the Alligator goes back to sleep again (Balance Lines converge), having had enough to its full so it’s time to fix profits.
If the Alligator is awake, the market is either uptrending or downtrending:
1. If the market price is above the Alligator’s mouth, it is known as an uptrend.
2. When the market price is below the Alligator’s mouth, it is called a downtrend.
Another strategy is to use the fractal indicator in conjunction with Fibonacci retracement levels. One of the challenges with fractals is deciding on which one of the occurrences to trade. And one related challenge with Fibonacci retracement levels is which retracement level to use.
When used together, the possibilities will be narrowed down, since a Fibonacci level can only be traded when a fractal reversal occurs off that level. At the end of every daily Fractal occurrence, take note of when the price hits the farthest Fibonacci band; exit the position after the daily Fractal reversal, this helps eliminate the guesswork out of the equation and trade with exact Forex trading strategies. If you want to know how to add this indicator in mt4 you can read our how to install indicators on mt4 article. There we show you step by step how you can do this.
When to Trade
As a rule, it is better not to take trades before the first fractal is activated.
To add fractals in MT4, use the “Insert -> Indicators -> Bill Williams –Fractals” menu sequence: Fractals
Fractals create the following signals:
1. When a buy fractal is above the Alligator’s teeth (the red line), you should place a Buy Stop one tick over the high of the up fractal.
2. If a sell fractal is below the Alligator’s teeth, you should place a Sell Stop one tick under the low of the fractal sell signal.
3. Do not take a buy if a fractal is formed below the Alligator’s teeth.
4. Do not take a sell if a fractal is formed above the Alligator’s teeth.
Fractals are valid until they are activated, or a new fractal in the same direction appears.
If a fractal displays a trend that will ascend, it implies time to buy. If a fractal shows a trend that will descend, it suggests a time to sell.
How to Trade Simple Strategy and Profitable with Fractal Indicators
Fractals can be used for trading as follows:
1. Recognize the fractal points on the screen; ideally, a timeframe that is used is also large.
2. If you intend to carry out a buy order, then you should place a buy stop order above the fractals.
3. If you intend to place a sell order, then we should place a sell stop order below the fractals.
4. To install stop loss, make use of the Fractals point that occurred before, or exits when new opposing Fractals appear.
5. To calculate Profit Targets, use the Fractals point that occurred before or exits when new Fractals point to appear.
Pros and Cons of Fractal Indicator
Fractals indicator MT4 are excellent analytical tools that facilitate forex trading plan and trading technique strategy.
1. Fractals are essential for the placement of Fibonacci retracement levels.
2. Fractals are an outstanding technique to determine the trend.
3. They allow a safe entry technique.
4. Fractals are used by traders to place stop losses order.
5. Fractals function as regular support and resistance levels.
1. Fractals are lagging indicators.
2. Since it’s very common, it is best to combine fractals with other indicators or strategies. They cannot be solely relied upon.
1: Apply Both Fractals and Bill Williams Alligator Indicator on Your Chart
2: A down fractal must appear below alligator teeth, and the price action must stay below the Alligator Teeth for at least five consecutive candles.
3: Price Action needs to break below the fractal candle that was distinguished in Step #1
4: Exit the trade when two of the alligator lines cross over each other.
Last Remarks On Fractal indicator MT4
Fractal indicator MT4 is an essential Forex trading tool for its simplicity and analytical support. Its fundamental trading techniques should guide you to make the right decision in terms of trading strategy.
It can be easily deployed for Forex trading and even integrated with an automated Forex trading software. For anyone new in the business of Forex trading, Fractal indicator is highly recommended as an easy-to-use tool.
Furthermore, we have a wide range of tools and best forex indicators available on this platform. You can take a look through this link, to help generate higher profits.