Advanced Fractals Indicator For MT5




Table Of Contents:

  1. Advanced Fractals Indicator For MT5
  2. Understanding fractals
  3. Using the indicator
  4. Summary

The Advanced Fractals Indicator For MT5 is a custom fractals indicator for traders that use any part of Bill Williams’ chaos theory. The indicator can be used on its own or can be used as a foundation to understanding other more complex trading systems within Williams’ chaos theory. One of the most popular of these systems is the alligator trading system, which is a complicated system with sophisticated entry and exit rules and triggers, and which is where fractals can be applied to.

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Understanding fractals

Fractals are part of the chaos theory developed by Bill Williams back in the 80's which aimed to understand how markets flowed and then combined advanced technical patterns and trading psychology to trade them. Many traders are familiar with Williams’ indicators on MT5, which includes fractals.

The fractals from the Advanced Fractals For MT5 definitely look very foreign and unusual, which is why it is important to actually understand what they are for. It is not necessary to really know the mathematical, textbook definition of a fractal. Fractals are simply just a phenomena of identical patterns which repeat themselves when looked at from bigger to smaller scales just like in crystals and snowflakes. Simplified even further, in layman’s terms, fractals are really just a type of five-bar candlestick pattern.

A bearish fractal is whereby there is a candle with a high and then two candles adjacent on either side with two successive lower highs. A bullish fractal is whereby there is a candle with a low and then two candles adjacent on either side with two successive higher lows. Fractals are also better understood when trading with analysis that would involve Elliot waves, Fibonacci etc. besides, of course, Williams’ indicators.

Using the indicator

The advantages of the Advanced Fractals Indicator For MT5 outweigh the disadvantages because understanding fractals is very simple. The drawback with fractals is that they lag quite heavily. Even though a fractal can appear in one instance, it should never be taken as a confirmation from the get-go as price could still break the high or low, at which point the fractal would disappear. So, with this in mind, it would be harder to pinpoint a reversal or turning point more exactly. Therefore, because of this lagging nature, it’s important to be ready to act quickly yet safely to ‘catch the move’.

The only difference with the Advanced Fractals Indicator For MT5 from the default fractals indicator on the MT5 platform is that you can change the value, hence making them advanced. With the luxury of being able to adjust the value of the fractal, it’s useful to know that the number chosen here will depend on the type of trading style.

It makes sense that the standard two is more stable on a less noisier chart like a daily chart because the formation of two candles for a fractal happens rarely, which is why they are fewer and there’s an even distribution of them. Smaller values are going to be confusing for day traders, which isn’t going to produce any cohesive assessment of what’s actually going on. In this case, a higher value makes more sense.

From a glance, it’s easier to see how fractals can be viewed as solid support and resistance; they are essentially turning points.  Especially on higher time-frames like the daily, depending on the value chosen for the fractal, one which forms on the chart is significant, and provided the market respects the fractal over a reasonable period of time, one would anticipate, at the very least, some form of a pullback or up to a bona fide reversal. In this regard, traders can look to exploit a plethora of trade ideas with the fractals, which are not so messy on the charts with another indicator/s.

For the ‘chart artist’, fractals can be used as reference points for plotting patterns like channels and wedges. The screenshot above demonstrates both of these patterns in play. What is great with fractals is that they can make drawing these less confusing without wondering where to plot these lines as there may be the confusion sometimes ordinarily.

The examples marked 1 and 2 on the screenshot show a simple equidistant channel and wedge pattern. Notice that one would have drawn the bottom channel trend line just exactly on the lowest candle on the blue fractal, and this would have automatically produced the rest of the channel.

The market had been in a pullback from a downtrend for close to two months, and one would have been anticipating a strong breakout beneath the channel, and eventually, it did drop rather strongly to the downside with the help of the fractal. Example 2 also shows a similar way in which the trend lines would have been plotted using the fractal as a basis, and then the eventual drop outside the channel.

Fractals can certainly aid when it comes to trade entries and management. With trade entries, on smaller time-frames, a break of an existing fractal or a fractal appearing then disappearing could be used to scale in or add another position/s. Of course, this should be rigorously back-tested, but the point is simple to understand. With trade management, fractals can provide a place of proper stop loss placement in the context of a particular trade set-up.

For a long set-up, the stop loss would typically be placed below the last or closest fractal below a support level, and for a short set-up, the stop loss would typically be placed above the last or closest fractal above a resistance level. It’s obviously important to observe what is happening in the market and monitoring the fractals themselves, and the same thinking with the trade entries could also be applied to trailing stops.

Summary

The Advanced Fractals Indicator For MT5 should definitely not be used as the first or primary point of reference when it comes to analysis. Through screen time and experience, like with most indicators, it can certainly add confluence to a robust trading strategy. These fractals should rather be combined with other indicators aligned with Williams’ theory like the alligator, awesome, accelerators and Market Facilitation Index. Happy trading!

 

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