Forex Fractals trading strategy FreshForex

In Case You've Never Heard Of Fractals...
I'll spare the mathematical aspects and get right to heart of fractals so you can use them in your trading as soon as possible.
Imagine in your mind: the "fluffy" structure of a cloud, or the incalculable curves along a massive coastline. How would you go about measuring either of these? I'll tell you this, the irregular and complex characteristics of their shapes can't be measured in length or width. But with what legendary maths visionary Benoit Mandelbrot refers to as "roughness".
What Do Clouds And Coastlines Have To Do With Trading...
Nothing. But there is a critical link. The fractal nature of their structure provides valuable insight we can apply to other fractal phenomenon. Take for example this image of broccoli romanesco...
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Take a close look at the inside of the broccoli's stalk. The "branches" multiply out to more branches and those too expand out into more similar branches. This is a fractal structure and it appears all throughout biology and nature. At first glance the form appears elaborate, but upon closer observation the little branches are incredibly similar to the whole vegetable. The only difference is scale. Interestingly enough, fractals appear in the financial markets as well - it's as if they were an extension of nature themselves. Your probably wondering by now, what does this mean to me and my trading?
You Trade Your Belief System And Your Brain Is A Fractal Structure...
That escalated quickly didn't it? Before you reap the benefits of this penetrating insight, I'm going to walk you through the easy logic behind it. The conclusion assumes two premises. Firstly, the financial markets is driven by two psychological aspects of our fractal minds: fear and greed. This idea is commonplace among renown financial experts and traders. Secondly, the complex neural networks of our brains are indeed fractal structures, of which can be seen with high powered microscopes or fMRI. Now, if you have followed along this far - let's see how we can observe these fractals, or psychological footprints, as price action patterns on your chart (Finally!)
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This is a bearish fractal, it is composed of 5 or more bars and it occurs at a top. As you can see, fractals are repeating, easy-to-spot patterns that occur no matter how chaotic the market may be.
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This is a bullish fractal, it is composed of 5 or more bars and it occurs at a bottom. These are the most commonly identifiable fractals, others do exist however we will not cover them in this post.
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Fractals Give Entry After A Pullback Or Consolidation Zone...
Fractals became an invaluable tool to my trading when I was looking for short term opportunities in a trading range using a Donchian Channel and especially in combination with a set of moving averages like the Alligator.
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In the image above you will see my customized 55 Period Donchian Channel on a GBPUSD 30 minute chart. The up arrows represent a bearish fractal and the down arrows represent a bullish fractal, which may have been confusing had I not described them earlier in the post.
I've circled the entry fractals that the Donchian Channel filtered out of the many fractals that appeared. I am aware the most common setting for the channel period is 20 days, however, I find that during a non trending market 55 serves excellently on this time frame.
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What About Trend Following With Fractals...
In this image you will see a variant of the classic Alligator I use in my Stop Sign Trading webinars on a Cable M30 chart.
I find the great thing about using fractals with moving averages is that the trend itself serves as a powerful filter. In this example I've identified the trend is down, so I am only looking for bearish fractals to enter once price has made a pullback. After the fractal appears I set my stop loss and enter the trade in agreement with the overall trend. The most common settings for the moving averages of the Alligator are 13, 8 and 5 however these are not the settings shown in this example.
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Points To Remember About Fractals...
Don't pay to have the fractal or Donchian Channel indicator for your charts! Nearly every platform has them installed in your charting software automatically. Fractals are by no means a perfect tool and aren't limited to entry confirmations. Many traders find them better suited for take profit or stop loss levels, but never traded by themselves as fractals are only a confirmation tool. It is important to know the overall trend, monitor news releases and manage your risk according to your own personal strategy.
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FULL RISK DISCLOSURE: All of the information in the above post is meant for educational purposes only and should not be taken as investment advice. Trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is no guarantee of future results.

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