Fractal Indicator: Complete Guide to Trading Binary Options
Fractal is a unique technical analysis indicator developed by Bill Williams to identify key reversal points on a chart. The indicator is displayed as arrows above and below the candlesticks, showing potential support and resistance levels. For binary options traders, Fractal is a powerful tool for determining entry points and setting protective orders.
What is the Fractal indicator and how does it work?
A fractal is an indicator that marks specific price formations on a chart, consisting of five consecutive candlesticks:
Bearish fractal (arrow at the top): formed when the maximum price of the middle candlestick out of five is higher than the highs of the two adjacent candlesticks on the left and the two adjacent candlesticks on the right
Bullish fractal (arrow down): formed when the minimum price of the middle candle out of five is lower than the lows of the two adjacent candles on the left and the two adjacent candles on the right
Key features:
Lagging indicator (formed after the pattern is complete)
Identifies key support and resistance levels
Works on all timeframes
Effective in combination with other indicators
Setting up Fractal in the trading platform
The indicator settings are standard for all platforms:
Period: 5 (standard parameter)
Color settings:
Bullish fractals: green arrows at the bottom
Bearish fractals: red arrows at the top
Recommended timeframes:
M1-M15 for medium-term trading
M15-H1 for long-term trading
Fractal trading signals for binary options
1. Fractal level breakout:
Buy (Call): Breakout of the upper fractal upwards
Sell (Put): Breakout of the lower fractal downwards
Expiration: 2-5 minutes
2. Rebound from the fractal:
Buy: Rebound from the lower fractal upwards
Sell: Bounce from the upper fractal down
Expiration: 1-5 minutes
3. Signals in combination with the trend:
Buy only during an uptrend (fractals are consistently rising)
Sell only during a downtrend (fractals are consistently falling)
Practical trading strategy
Fractal Breakout Strategy:
Identify the last fractal formed
Wait for the fractal level to break out
Confirm the signal with trading volume
Enter the trade in the direction of the breakout
Expiration: 1-5 minutes
Fractal + Alligator Strategy:
Wait for the Alligator to wake up (lines diverge)
Find the last fractal in the direction of the trend
Enter the trade when there is a pullback to the fractal
Expiration: 2-5 minutes
Combining with other instruments
To increase the effectiveness of Fractal, use it in combination with:
Alligator - to determine the direction of the trend
Awesome Oscillator - to confirm momentum
Fibonacci levels - to determine targets
Moving averages - to filter signals
Risk management:
Trade size: no more than 2-3% of the deposit
Profit/risk ratio: 1:2
Trade only when there are clear signals
Conclusion
Fractals are a powerful tool for identifying key support and resistance levels. Their main advantage is their visual clarity and ease of interpretation. For binary options traders, the ability to use fractals to determine entry points and set protective orders is particularly valuable.