Fractals Theory is an important tool that can be utilized to assist traders engaged in foreign currency trading. A word of general advice amongst experienced FX trading professionals is that the use of Fractals for FX trading should be as a complimentary aid to your strategy. In other words, fractals should be used as a way of confirming the predictions and analysis’ you have already constructed.
Quite simply, a fractal is a snapshot view of a set point in the movement of a certain trade. Usually displayed in the form of a graph, a fractal will consist of a minimum of 5 bars, laid out consecutively.
Below charts represent typical fractal formation, retest and continuation of the move. In the fast moving markets on the second chart you could see quite a different perspective fractal retest. The parabolic move of the Forex market could challenge you to look at the fractals and retest from quite different perspective as the “Flag Fractals”. The magnitude of the retest is much stronger.
Through careful analysis of the position and height of the fractal bars on the chart, a trader experienced enough in FX trading and analysis can determine whether or not a certain action is a wise one to take.
How using fractal analysis benefits foreign currency trading
By using the Fractals in Forex trading, you are basically confirming whether or not your trading is falling in line with the direction of the markets momentum.
The momentum and direction of any move in the FX trading market will continue in the same way until it hits key reversal point - a situation that stops or restrains it from continuing in that direction. By correct use of fractals, an experienced FX trading professional can analyse the bars on the chart to determine firstly the direction of the market’s momentum, and secondly the power of the market’s momentum.
Analysing the plotted graph of fractals effectively can not only show you the direction the market trend is moving in, but can also help to pre-warn you of impending changes. The changes may be only short term if the trend continues, which some traders like to call a noise or long term which result in trend reversal.
So if when using fractals to aid your foreign currency trading, the bars or candlesticks on the graph begin to indicate that the market will begin to take a turn in the opposite direction, a trader can use this indication – what is commonly called a ‘stop and reverse’ signal in order to ensure the best exit price.
FX trading is a process that provides a trader with great success providing they stick to the right strategy. Foreign currency trading is quite simply a very technical rulebook, and using fractals is one of these technical rules that is very important to not only helping to make successful trades, but also in helping to indicate continuation of the move or pre-warn against potential downturns and changes in the FX trading market’s movement. More about Fractals you can read here...