Does Fractal Breakout Trading Strategy even work?
Is this indicator worth trading in the long run?
Will it even make money in forex and stock market trading?
Well, I have tested the Fractal Indicator before, and it didn't have a good win rate.
In fact, when I tested the Fractal Indicator 100 times, it actually didn't give a profitable
win rate at all.
The profit graph in the Trading Rush App was negative and the profit graph didn't look
good either.
The strategy that we used in the last fractal video, was based on the trend direction, and
in that strategy, the long entry signals were taken when a down arrow appeared in an uptrend.
Similarly, the short entry signals were taken when the up arrow appeared in a downtrend.
In simple words, we used the fractal indicator to create a trend following strategy, where
fractal fractal was trying to give entry signals at the end of the pullback.
And as you already know, the fractal indicator failed horribly at that because it gave too
many entry signals in a short amount of time.
But today's fractal trading strategy is different.
It is better, and here's how to use it.
We test many different trading strategies 100 times on the Trading Rush Channel to see
if they work or not.
If you are new here, subscribe to the Trading Rush Channel and ring that notification bell,
because you don't want to put your money on a strategy that does not work at all.
This Fractal Trading Strategy is better than the previous fractal strategy, because while
testing the strategy 100 times, I found some really good advantages of using this strategy
over the previous one.
In the last fractal video, we took trades as soon as the fractal arrow appeared, but
in this strategy, we wait for the price to break above or below the candle that has a
fractal arrow.
Let me explain.
This fractal strategy is more of a fractal breakout strategy.
A fractal arrow appears on a candle when two more candles after it are closed.
The buy entry is at the closing price of the candle, that crosses above the high of the
candle with the fractal arrow.
Get it?
Similarly, Once a down arrow appears on a candle, the sell entry is at the closing price
of the candle, that closes below the low of the candle that has the fractal arrow.
Very simple.
For example, here, first an up arrow appears, then price crosses and closes above the entire
candle with the up arrow.
Your entry is at the closing price of the first candle that crossed and closed above
the fractal candle.
And in the second example, first the down arrow appears, then price crosses and closes
below the entire candle that had the down fractal arrow.
Your entry is at the closing price of the first candle that crossed and closed below
the fractal candle.
In simple words, in a long setup what the price is really doing is, breaking above a
high point that made the price move down.
If a price level makes the price move down, it means there is a selling pressure near
that level.
If price breaks through that level, the sellers will probably get out of the market, which
will result in more buying pressure.
Similar thing applies to a short setup, just the opposite.
I will explain more about how buyers and sellers play an important role in a future video,
maybe subscribe to see that.
In this video, the fractal breakout strategy that we have seen so far, is not that good,
because it is not a trend following strategy.
As I have always said on the Trading Rush Channel, if you want your trades to have a
higher probability of winning, take trades in the direction of the trend and not against
it.
So, lets use a 200 period moving average to find the direction of the long term trend
direction.
Price above it indicates an uptrend, and price below it indicates a downtrend.
So here's how the modified fractal breakout trading strategy goes.
If price is above the 200 period moving average, and if an up fractal arrow appears on a candle,
the buy entry is at the closing price of the candle, that crosses above the high of the
candle with the fractal arrow.
Stop Loss goes below the candle with the down fractal arrow.
If the price is below the 200 period moving average, and if a down arrow appears on a
candle, the sell entry is at the closing price of the candle, that closes below the low
of the candle that has the fractal arrow.
Stop Loss goes above the up fractal arrow.
In this example, price is above the moving average, and crossed above the entire fractal
candle.
So the entry is at this candle, and stop loss below the pullback indicated by the fractal.
And in this example, price is below the moving average, and crossed below the entire fractal
candle.
So the entry at this candle and stop loss above the pullback indicated by the fractal
indicator.
Just remember that pullback indicated by the fractal indicator won't be always right.
Furthermore, it is a good idea to only take trades, where both the fractal and the entry
candles are on the same side of the moving average.
This will help you avoid the range market, because in the range market when the moving
average is flat, the fractal and the entry candles are usually on the opposite side of
the moving average.
So, I tested the Fractal breakout trading strategy, and here's what I found out.
Number 1.
This fractal breakout strategy is nothing like the previous fractal trading strategy.
This one is better and actually gives proper entry signals.
Now, since this is still a fractal indicator, it gives a lot of entry signals in a short
period of time.
But the best thing I liked about this strategy when compared to the previous one, is that
it doesn't try to predict the end of pullback multiple times in a row.
The previous fractal strategy gave multiple long entry signals, when price was still going
straight down in a pullback.
While testing the fractal breakout strategy 100 times, I have found out that most of the
time, this strategy will give entry signals when the pullback is actually over.
It won't spam you with multiple entry signals when the price is clearly not preparing to
go in your favor.
Number 2.
The fractal breakout strategy filters some of the false signals on its own.
For example, when the previous fractal strategy gave a buy signal, there was still a high
chance that price could go sideways after the end of a pullback.
But since the current fractal strategy gives buy entry signal when a candle closes above
the previous swing high, you are kind of buying above a price level, where price had a high
chance of going sideways because of the selling pressure.
If it sounds confusing, look at the chart for reference.
Also, if I haven't mentioned already, you only have to look at the latest fractal candle
to find the entry signals.
For example, when price is giving a bigger pullback in an uptrend, you might see multiple
up fractal arrows in a row.
But only the latest fractal candle is valid.
So your long entry signal is when a candle closes above the last fractal candle with
the up arrow.
Forget all the candles before that.
So when you are buying with the fractal breakout strategy, you are actually buying at the
candle that broke above the previous swing high, which is a good thing as breaking above
the previous swing high can indicate a buying pressure.
During the testing, when the overall trend direction was good and price was not moving
sideways, the fractal breakout trading strategy gave a lot of valid entry signals.
But when the long term trend direction was flat, it gave couple of false signals, but
not like the previous fractal strategy.
The previous one gave a lot of false signals during a range market.
This one performed much better, because in this strategy, price has to break above or
below the previous swing of the trend, and in the sideways market, many times price didn't
break through a new swing for the strategy to give an entry signal.
So after testing the fractal breakout trading strategy 100 times, I found out that the win
rate of the Fractal Breakout strategy is approximately 48 percent.
That's right, similar to the beep boop indicator we tested in the last video.
But this is much better than the previous fractal strategy.
If we compare the two, you will see that the last fractal strategy only gave an approximate
win rate of 38 percent, which is way lower than what we got here.
The price graph of the breakout strategy also looks a lot cleaner and one sided.
But since the fractal indicator gives a lot of entry signals, you should make sure that
you always take trades when the market is in a trend, because if you don't, you will
end up taking multiple losing trades in a sideways market.
That's all.
Like the video if you liked it.
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100 times on the Trading Rush Channel, and you don't want to miss that, because you don't
want to put your money on strategy that does not work at all.
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And thanks a lot for watching.