Fractals used in conjunction with other technical analysis tools can provide reliable signals to buy and sell currencies. Here’s my simple forex fractal strategy to pinpoint powerful entries in the market.
Chart Setup
- Time Frame’s: 1 hour chart and above
- Currency Pairs: majors + currency crosses
- Trading Sessions: all
Indicators:
- 50 exponential moving average (50 EMA)
- Bill Williams Fractal indicator (standard forex indicator)
Entry Rules
Short Trades (see example below)
- Price trades below the 50 EMA.
- Wait for a bearish fractal pattern to complete near the 50 EMA.
- Use bearish candlestick patterns or any other tools to confirm the trade before going short at the close of candlestick 5.
- Trade confirmed? If yes, enter short at the close of candlestick 5 and place stop loss 3 pips above the fractal candlestick (3).
- Use your own take profit methods or use risk-to-reward ratio 1:2 or better.
Example: Simple Forex Fractal Trading Strategy
A bearish fractal pattern appeared on the chart above in the vicinity of the 50 EMA. The trade was confirmed by the appearance of a bearish candlestick pattern (3 + 4). A short trade was entered at 1.3934.
According to the trading rules, the stop loss was placed 3 pips above the fractal candle at 1.3975. The total risk on the trade was 41 pips + spread (1-2 pips). It turned out that this was a nice signal to sell the euro/dollar pair. The pair moved 175 pips in our short direction. Happy pips!
Long Trades
- Price trades above the 50 EMA.
- Wait for a bullish fractal pattern to complete near the 50 EMA.
- use bullish candlestick patterns or any other tools to confirm the trade before going long.
- trade confirmed? If yes, enter long and place stop loss 3 pips above the fractal candlestick.
- Use your own take profit methods or use risk-to-reward ratio 1:2 or better.
