What are Fractals in Trading?
Quick Answer: Fractals are five-candle swing patterns that highlight potential reversal points by showing local highs or lows surrounded by opposing candles.
Understanding Fractals in Trading
Fractals are recurring multi-candle patterns popularized by Bill Williams. A bullish fractal forms when a candle's low is preceded and followed by two higher lows; a bearish fractal occurs when a high is surrounded by lower highs. These structures highlight potential turning points.
Using Fractals
Fractals help identify swing highs/lows for trend analysis, stop placement, and breakout confirmation. Combine them with larger frameworks such as top-down analysis or supply and demand zones to filter signals.
Breakout Filter
Traders often wait for price to close above a bearish fractal high to confirm bullish momentum before entering with the trend.
Limitations
Fractals repaint until five candles complete, and in choppy conditions they appear frequently, generating noise. Pair them with indicators like moving averages or mean reversion filters to avoid whipsaws.
Avoid Overreliance
Fractals alone do not guarantee reversals. Always validate with broader structure and liquidity considerations before committing risk.
Related Terms
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