Bill Williams Fractals is one of the indiactors i used on my trading strategies primarily to determined trend and trailing take profit and cut lose placement.
The Fractals were developed by Bill Williams as part of a system that he created mixing the Chaos Theory with Human Psychology. Fractals indicator is one of the algorithm highlighting the chart’s local heights and lows where the price movement had stopped and reversed. These reversal points are called adequately Highs and Lows. Being one of the most unintelligible terms of the modern mathematics, psychologist and trader Bill Williams dedicates much attention to fractals and described it in his book “Trading Chaos” for better recognizing and estimating the market price movements. The price patterns can be used to verify price movement.
Taken alone, fractals are indicators that actually break larger trends into smaller and simple reversal patterns.Fractals can be bullish or bearish, so the basic strategies for identifying them are:
Bearish – when a price outline has the highest high in the center, affiliated by two lower highs.
Bullish – when a price outline has a lowest low in the center, affiliated by two higher lows.
Fractals are covering indicators so they do not have predicative value for the price since they follow it. Traders generally use them with other indicators to confirm that reversals have indeed occurred.
Bill Williams Fractals Application
Fractals are usually used in recognize whether or not a price reversal has occurred. One of the most ordinary usages of Fractals indicator is in combination with the Alligator trading system developed by Bill Williams. Buy fractal is an arrow pointing to the top, and Sell fractal is an arrow pointing to the bottom.
The fractals are turning points, and we will use them for our stop loss placements (initial and trailing). The idea is that in a
long trade, we will place our stop at the most recent red fractal and in a short trade we will place our stop loss at the most recent green fractal (further down stop placement).
See a representation of fractals on the right, swing lows are the red fractals and swing highs are green fractals.
Bill Williams Fractals Calculation Method:
Not really important, but just good to know
N = the number of the time period bar in question.
High (n) = the high price traded during time period n.
Low (n) = the low price traded during time period n.
An UP Fractal exists at n if the following conditions are met:
High(n-2) < High(n)
High(n-1) < High(n)
High(n + 1) < High(n)
High(n + 2) < High(n) A DOWN Fractal exists at n if the following conditions are met: Low(n-2) > Low(n)
Low(n-1) > Low(n)
Low(n + 1) > Low(n)
Low(n + 2) > Low(n)