Fractals are not only abundant in nature, they are also the building blocks of trends. They are simple yet important, repetitive formations, self-similar across different time frames and used by traders to identify or conform a trend (markets trend about 30% of the time) in order to trade it profitably. When broken apart, they exhibit the same characteristics as greater patterns or price movements. Fractals lag the market, because it takes time for them to form. They can include any number of bars, though the minimum is 5.
Fractals form the swing points of the market (creating fractal levels) and bearish fractals and bullish fractals are distinct. There are several trading strategies based on them, each with their own set of rules for entry and exit. Some traders use them to draw trend lines.
Bill Williams uses fractals in his trading system and developed an indicator to identify them. Whether they are used alone or in combination with other techniques such as
Fibonacci levels,
Support & Resistance, or other indicators, fractals can be useful tools in a technical trader's toolbox.
