TASKS
1- Define Fractals in your own words.
2- Explain major rules for identifying fractals. (Screenshots required)
3- What are the different Indicators that we can use for identifying Fractals easily? (Screenshots required)
4- Graphically explore Fractals through charts. (Screenshots required)
5- Do a better Technical Analysis identifying Fractals and make a real purchase of a coin at a suitable entry point. Then sell that purchased coin before the next resistance line. Here you can use any other suitable indicator to find the correct entry point in addition to the fractal. (Usually, You should demonstrate all the relevant details including entry point, exit point, resistance lines, support lines or any other trading pattern)
image designed with canva
Define Fractals in your own words.
Fractals are reversal candlestick patterns that occur on all timeframes. They are self repeating geometric patterns which must consist of at least five candlesticks in patterns to be identified. Fractals assists in anaylyzingt the market randomness on a daily basis by examining investors bias
However, fractals are lagging indicators as the reversal point can be drawn until some time has elapsed into the reversal but the reversal signals given are bound to continue in pattern and therefore they are of benefit to traders. To understand and take advantage of fractals in the market, traders should be able to identify these formations when they form. The rules for the identification is given below
2- Explain major rules for identifying fractals
Fractals as explained above is a very prominent patter which signals a reversal in the market. It is therefore very advantageous for traders to know how to identify these formations whenever they suffice to have an edge in the market. There are two types of fractals, the bullish fractal and the bearish fractal and each of them requires a formation of five candlesticks for the pattern to be confirmed.
Identifying bearish fractals
For a bearish fractal formation, the highest high of the pattern should occur in the middle with two lower highs on either side. A bearish fractal can essentially be identified by the upside down "U" shape it forms as a result of price initially moving upward then downward.
Bullish Fractal
For a bullish fractal formation, the lowest low of the pattern should occur in the middle with two higher highs on either side. A bullish fractal can essentially be identified by the "U" shape it forms as a result of price initially moving downward before reversing upward.
A graphical illustration of both bullish and bearish fractals is given in the chart below
SAND/USDT chart showing both bullish and bearish fractals
image gotten from trading view
In the SAND/USDT char pair above, I've identified both bullish and bearish fractals with the help of the rectangular tool. Observation shows that after the formation of the respective fractals, the reversal pattern was respected as illustrated with the help of the arrow tool.
3. What are the different Indicators that we can use for identifying Fractals easily?
As fractals are frequently occurring patterns, some indicators have been developed to better help traders spot these patterns and take advantage of them. Some of these indicators include: Williams fractals indicators, fractals high and low, fractal regression bands, fractals breakouts, fractals support and resistance
Billiams Fractals indicators was developed by Bill Williams and initially introduced in his trading book "trading chaos" to assist traders in detecting reversal points (both high and lows) in the market. These points are marked with shapes in the form of arrows and the difference between the fractals are factored out with a different color for each occurring fractal ( bullish and bearish).
The red arrows represent bullish fractals while the green arrows represent bearish fractals. This indicator also helps traders determine the direction in which price will develop by isolating and making use of a five-bar model to identify possible reversal points. However, the fractal indicator gives frequently occurring signals which may be confusing to some traders, but these signals can be filtered with some indicator like the alligator indicator to take signals based on trends in the market i.e (in a bullish market, trade only bullish fractals signals and in a bearish market trade only bearish fractals signals).
A graphical illustration of the Williams fractal indicator is given below in the SAND/USDT chart pair.
William fractal indicator added to chart
The fractal support resistance indicator is an indicator that helps in identifying and automatically plotting support and resistance with the aid of fractals. Resistance is a level or price point at which price finds it difficult to rise further due to the significant increase of sellers in the market, therefore price is expected to reverse to the downside upon reaching this point. Resistance is identified with the use of green dotted lines by the fractal support resistance tool and conversely, support is a level or price point at which price finds it difficult to fall further due to the significant increase of buyers in the market, therefore price is expected to reverse upwards upon reaching this point. Support is identified with the use of red dotted lines by the fractal support resistance indicator.
This indicator helps traders in breakout trading through a strategy.
- If price breaks above the green dotted resistance fractal line with increased volume, then price is expected to go further bullish and also whenever price breaks below the red dotted support fractal line, then price is expected to go further bearish. With these strategy, traders can spot and take advantage of breakouts when they occur.
A graphical illustration of the fractal support resistance applied to chart is shown below.
4- Graphically explore Fractals through charts.
Fractals are said to be frequently occurring geometric patterns. This means in the price of an asset, similar fractal patterns may be spotted and this knowledge helps traders to determine the reversal point of an asset in current price.
To demonstrate this, ill be making use of a tool called the "Bar patterns tool" and next I'll select a pattern on the chart and try to find other places where similar patterns were formed in future prices.
SOL/USDT
In the SOL/USDT chart above, I've identified a fractal formation and selected a portion of the uptrend where price pulls back before continuing the bullish impulse. Price maintained its uptrend until the most recent resistance was hit. At this point price reversed and spiraled into a downtrend.
I've discovered a similar occurring fractal in future price where the same scenario repeated itself.
Upon observation, it is noticeable that the fractals, in this case, are very similar and the same situation repeated itself afterward however it took a longer time to form in the second scenario.
After the fractal formation, price also maintained an upward move until the most recent resistance was hit. At this point, price also reversed and spiraled into a downtrend.
Fractals are useful tools that help traders find similar occurring patterns however it's not in every case that the confirmation of a similar fractal pattern will result in a 100% match of the previous price data as traders who have identified and confirmed the pattern would be looking to make profits off them therefore due to the volume of trades injected at the formation of identical fractals the result might often deviate a bit from the initial reversal pattern.
5- Do a better Technical Analysis identifying Fractals and make a real purchase of a coin at a suitable entry point. Then sell that purchased coin before the next resistance line. Here you can use any other suitable indicator to find the correct entry point in addition to the fractal.
For this task, ill be making a verified purchase of a token with the use of some technical analysis indicators discussed above. I'll be making use of trading view for the analysis with the use of the william fractals indicator and the fractal support resistance indicator help in plotting significant support resistance levels with the aid of fractals.
I've plotted the necessary important levels on the chart which includes a level of liquidity. A strong demand zone that hasn't been retested by price ,we observe that price has come back to retest the zone and a bullish fractal signal has been given. I waited until I began to see some price rejections and when this condition was satisfied, I entered a buy trade on the COTI/USDT pair on my binance mobile wallet with a take profit ratio of 1:1 below the previous fractal support indicated by the fractal support resistance indicator as this is a potential zone that might cause a price reaction.
Image gotten from binance mobile wallet
Conclusion
Fractals are very useful self repeating patterns that traders can key into and take advantage of to make profitable trades in the market. The crypto professor has done an excellent job of enlightening the students about fractals and how to trade them.
Thanks to the steemit team for the crypto academy, It's done far much in helping me tackle the markets one indicator/strategy at a time.