Fractals
Introduction
Section titled “Introduction”All markets experience periods where prices remain relatively stable, with only a small percentage of time dedicated to trend changes. The most profitable opportunities often arise when market prices follow a specific trend.
Fractals
Section titled “Fractals”Fractals are one of the five indicators in Bill Williams’ trading system. They help identify market tops and bottoms. An upwards fractal consists of a series of at least five bars, with the highest high in the middle and two lower highs on either side. A reversing set, or sell fractal, consists of a series of at least five bars, with the lowest low in the middle and two higher lows on either side. Fractals are represented by up and down arrows on a chart.
Signal Filtration with Alligator
Section titled “Signal Filtration with Alligator”Fractal signals should be filtered using the Alligator indicator. If a buy transaction is open, it should not be closed if the fractal is below the Alligator’s Teeth. Similarly, if a sell transaction is open, it should not be closed if the fractal is above the Alligator’s Teeth.
Signal Validation
Section titled “Signal Validation”Once a fractal signal is generated and confirmed by its position beyond the Alligator’s Mouth, it remains a valid signal until it is either challenged or a more recent fractal signal appears.
Fractals in Trading Signals
Section titled “Fractals in Trading Signals”A fractal is only confirmed after two complete bars have formed on its right side, so on the most recent bars a fractal can still appear or disappear. Use a Shift of 3 or higher if you only want to act on confirmed fractals. On bars without a fractal the indicator has no value.