Tuesday, July 16th, 2013 by Sjay Bell
Iβm back again to talk to you guys about some technical indicators that can help you with your trading, and ultimately make you money. So, today I will be going over the Fractal indicator. The Fractal is one of the most effective technical indicators in the market. Many investors use it for different reasons. Some use it to identify support and resistance, identify highs and lows of a current trend, or even to identify reversals in the market. There are so many more ways to utilize this indicator. I am very eager to tell you guys more about this indicator. So, allow me to get more in depth with it. Hold on to your hats!
What is the Fractal indicator and how does it work?
The Fractal indicator is a type of pattern used in technical analysis to predict a reversal in the current trend. A fractal pattern has a minimum of five bars. These patterns can be recognized when the price meets these qualities:
- A move from a downtrend to an uptrend happens when the lowest bar is located in the middle of the pattern and two bars with consecutive higher lows are positioned around it.
- A move from an uptrend to a downtrend happens when the highest bar is located in the middle of the pattern and two bars with consecutive lower highs are positioned around it.
When used alone, the Fractal indicator can use value of use. So, combining it with other indicators can really boost its full potential. One of the most popular indicators used with the Fractal is called βThe Alligator indicatorβ. The Alligator is formed by the combination of 3 moving averages. By popular belief all call options are only valid if below the “Alligator’s teeth”. On the other hand, all put options are only valid if above the alligator’s teeth.
What are the advantages and disadvantages?
Some advantages to using Fractals are that you are able to identify highs and lows of a current trend on any time frame. They can be used to predict reversals in the market. You can also use Fractal signals to easily identify support and resistance levels. Some disadvantages to using the fractal indicator are that it is a lagging indicator. So, fractal signals may be drawn after two or more candles. Even though this may occur, most reversals continue for many bars. So, the trend will stay intact. Higher time frames give more trustworthy signals. But, with high time frames, you may get a lower amount of signals.
In conclusion, the Fractal indicator is a very powerful tool to use in your trading. Combining it with other indicators (Alligator Indicator) can boost it to its full potential. With the use of Fractals, you are able to receive reversal signals in the market, and identify support and resistance levels. I hope this piece really helped you guys. I wish you all good luck with your trading. Until next time, happy trading!