Although prices may appear to be random, they actually create repeating patterns and trends. One of the most basic repeating patterns is a fractal. Fractals are simple five-bar reversal patterns. This article will explain fractals and how you might apply them to your trading strategy.
Introduction to Fractals
When people hear the word “fractal,” they often think about complex mathematics. That is not what we are talking about here. Fractals also refer to a recurring pattern that occurs amid larger more chaotic price movements.
Fractals are composed of five or more bars. The rules for identifying fractals are as follows:
A bearish turning point occurs when there is a pattern with the highest high in the middle and two lower highs on each side.
A bullish turning point occurs when there is a pattern with the lowest low in the middle and two higher lows on each side.
The fractals shown below are two examples of perfect patterns. Note that many other less perfect patterns can...
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