How to use fractal trading strategy – ForexLive

A closer look at fractals

RBFX
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.

RBFXThe desktop of Fractals

Explication
of the desktop:

  • Bill
    Williams’s Alligator with standard parameters
  • Bill
    Williams’s Fractals

👉 Make sure to check our articles about the Fractals indicator and the Alligator indicator by Bill Williams.

A signal
to buy by Fractals

For a trading signal to enter a long position to appear,
the following conditions must be met:

  1. all the lines of Alligator must be
    aimed upwards, being arranged (top-down) the following way: green, red, blue.
  2. 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.

RBFXExamples 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

For a
signal to enter a short position to appear, the following conditions must be
met:

  1. all the lines of Alligator must be
    aimed downwards, arranged (top-down) in the following way: blue, red, green.
  2. 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.

RBFXExamples 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.

RBFXAn 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.

By Dmitriy Gurkovskiy,
Chief Analyst at RoboForex

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