After presenting the fractals last week, we want to develop a strategy based on this indicator. We will proceed as meticulously as possible and include other indicators in trading technology. Because we also learned about fractals that they are calculated quite simply and accordingly generate a lot of false signals if you only rely on this indicator. A quick refresher:
Fractals are depicted as triangles in the course, whereby the triangles should represent reversal points. If a triangle points upwards, a reversal point in an upward movement is likely. If the triangle points downwards, a reversal point in a downward movement is more likely. The calculation is based on SKS formations; they are basically technical set-ups. A low must have formed two higher lows on its side and a high must have formed two lower lows on its side in order to form a fractal triangle.
We also roughly indicated a strategy with fractals, like the upper chart shows. We not only chose the fractal itself to identify a reversal point, but several fractals had to indicate a reversal. This worked quite well, if not perfectly, because a reversal point did not always mean a reversal, but could also indicate a phase of weakness in an existing trend. We are now also taking advantage of this.
Short-term strategy with fractals
We want to trade in the short-term strategy from the 15-minute chart. To do this, we need simple trading rules, which we set up as last time, and expand them with other necessary rules. The last rules were:
- A trend must already have been established.
- Three fractals each indicate a reversal.
- The RSI indicator confirms the reversal or forms a divergence.
If we look at the chart, we can immediately see two price set-ups where a trading signal would be likely. However, if we follow the rules strictly, which is very important in trade, things look different - even if the trade would have worked. What was missing?
First we have a strong sideways phase (blue area). This means that there is no trade at all, since the first rule is not met. Then there is a strong trend phase. But can you already know this at the time of the first possible trade? Not really, because an established trend will only show up later - by confirming the trend line several times. The first rule would still not have been fulfilled at the time; Accordingly, no trade would normally take place in this case, even if the other two rules were met.
If we look at the second possible trade, the situation becomes a little clearer at this point in time because it could something like strong support forms below the trend line, which confirms a trend. So at that point we had fulfilled our first rule and can assume a trend.
The other rules are also fulfilled, because three fractals can be seen, see arrows. The RSI indicator also confirms the trend by showing clear strength. The questions that are still being asked are: where is the well-timed entry and what maturities should you trade?
If we take the present case again, you should be able to answer both questions depending on the following factor: at what time the signal was generated. If the trading signal was generated quite early in the morning according to the rules, you could choose a time until the end of the trading day. However, if the rules were only met towards the end or in the middle of the day, it might be an advantage to wait until the next day and then act.
There are several options for the technical set-up, You can either trade directly after the third fractal has been formed or after a relevant zone has broken out, which then occurs.
Conclusion - Fractals as a short-term trading tool
also repeat for short term trading in fractals and binary options. In trading, fractals have little in common with classic fractals from geometry, since they only identify possible reversal points based on SKS formations. With a little skill, filtering using other indicators and technical set-ups, fractals can be used to get a certain overview of the chart.
Click here to learn more about the Martingale system.