The concept of The Forex Fractal is more than just a strategy idea. It was first explained to me in depth by top trader and CTA (Commodities Trading Advisor) Chris Lori. If you find what follows interesting, I definitely recommend the study of Chris’s materials.
Trading The Forex Fractal
The fractal as used here refers to areas of pricechannelling and consolidation that are being watched by large numbers of forex traders. More importantly, the boundaries of those channels are being watched by the Big Guns in the market, thus forming levels of support andresistance.The dictionary definition of fractal is “A geometric pattern that is repeated at ever smaller scales to produce irregular shapes and surfaces that cannot be represented by classical geometry”.As in Fibonacci sequences, it’s a fact in nature, art and also trading, that patterns repeat. Pick a pattern on a five-minute forex chart and you will find the same pattern repeating on higher timeframes, very often “nesting” within the same timespan on the higher timeframes.
The first example shows price in a down trend. I have identified three fractals on this chart, indicated by the horizontal white lines.After price had plunged at the left of the chart it formed a holding pattern and tracked sideways.There are many fundamental reasons for this – and again I recommend Chris Lori for further information, as the subject is so broad and the detail intense that it cannot be covered in this (comparatively) short article – but what has happened is that sellers have withdrawn from the market and price has therefore stabilised.
By now I hope you can see how easy it is to draw in the lines representing the upper and lower boundaries of a fractal.You don’t have to do this physically on your charts of course; in time it just becomes automatic for you to see these levels and to note them.