In today’s article we will reveal one of the most powerful tools in cryptocurrency trading which often ignored even by top crypto traders. We are talking about fractals. Best crypto traders just use fractal levels to find support and resistance and trade bounces and breakouts. Spoiler – the fractal breakout is a right way to use it, but support and resistances aren’t. A lot of people are using fractals even for their algorithmic trading bots. We remember when encoding our first automated crypto trading bot the fractals were used for support and resistance detection. It’s not surprise that it was not one of the profitable crypto trading strategies.
Now we researched a different ways to use fractals and assume that we have the great expertise in it to share our knowledge with you. It’s not a top secret that even Skyrex ai trading bot is using fractals in detecting potential trading opportunities. Please, read this article carefully and you will know build your own cryptocurrency trading strategy or even apply it to automated cryptocurrency trading. Let’s go!
Initiating fractal
First of all let’s understand what is the fractal and how it looks like. Fractal is not just a sequence of candles like it can seems on the first look. This is the change in behavior of traders on the market. When you see the fractal on the chart, this is the turning point where a lot of traders were too worried that current trend can be stopped here.
Technically fractal is very simple. If we talk about upfractal it’s just a consequence of bars where the central bar have the highest high than two preceding and two following bars. On the chart below you can see different fractal’s shapes. Don’t worry about it that much because on the TradingView you can find an indicator which find all fractals. Even if you build automated trading bots you can just copy the code of this indicator.
How to trade using fractal
Let’s go to the most interesting part of an article. How to execute trades using fractal? You will be surprised but it’s super easy. Let’s take a look at the picture and try to understand the concept of fractal start, signal and stop.
- Fractal start is the fractal which precedes the another one fractal in the opposite direction
- Fractal signal is the fractal which follows the fractal in the opposite direction
Now when we have this two fractal combination we can place our sell stop one tick below the fractal signal and go short if market reach this level. Now it’s time to place the stop loss. When your trade is open you shall chose the highest fractal from the last two and place stop loss order one tick above. Here you can have two cases A and B. Look carefully and try to find these formations on the real charts.
Conclusion
Next time we will look inside the fractal and try to understand how to trade during sideways. I think today you could understand that fractal trading is good in trend markets, but it’s not profitable during sideways. Price will hit your order every time and hit stop loss many times before the true trend move. For sure fractal breakout trade guarantees that you will not miss the big trend move, but you will have multiple losing trades in the range bounded market. Next time we will discuss how to avoid it.
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