How to use fractal trading strategy
A closer look at fractals
This trading strategy is a bright example of a simple and plain trading system that still has a certain potential to it. The author of the strategy suggests the following currency pairs (and their futures) as the most suitable for the strategy: EUR/JPY, GBP/JPY, CHF/JPY, USD/JPY, AUD/USD, NZD/USD. The only suitable timeframe is H1.
The desktop of Fractals
of the desktop:
- Bill Williams's Alligator with standard parameters
A signal to buy by Fractals
For a trading signal to enter a long position to appear,
the following conditions must be met:
- all the lines of Alligator must be aimed upwards, being arranged (top-down) the following way: green, red, blue.
- a local low must appear with at
least 2 forex candlesticks with higher lows to the left from
it and one candlestick with a higher low to the right.
A signal to buy appears at once, as soon as the candlestick to the right of the local low stops forming.
Examples of signals to buy
As seen in
the picture, the system gives a lot of opportunities to enter the market.
A signal to sell by Fractals
signal to enter a short position to appear, the following conditions must be
- all the lines of Alligator must be aimed downwards, arranged (top-down) in the following way: blue, red, green.
- a local high must appear with at
least 2 candlesticks with lower highs to the left and one candlestick with a
lower high to the right.
A signal to sell appears at once, as soon as the candlestick to the right of the local high stops forming.
Examples of signals to sell
Where to put a Stop Loss or Take Profit?
A Stop Loss in Fractal must be placed several points above the local high in a buy and the local low - in a sell. In the latter case, always check the spread.
As soon as the buying price passes 10 points (100 pips in the 5-digit system or 3 digits for USD/JPY) from the selling/buying price towards the profit, you can transfer the SL to the entry level.
A Take Profit in the strategy is just two times
larger than the potential risk. Positions are not followed, except for transferring
them to the breakeven.
Money management by Fractal
As seen in the examples above, risk in points differs a lot. Hence, it would be optimum to risk the same proportion of your current fixed deposit in each trade - something under 1%. In case you are more used to trading a certain lot size, ignore those trading signals that suggest a noticeably higher risk than average.
An example of buying by Fractal
To my mind,
pay special attention to the signals that presume bounces off one of the
Alligator lines. Unfortunately, there are no reliable statistics of the
strategy except my own successful trading for 1.5 months. Hence, before relying
on this strategy, I suggest lengthy backtests.