Fractals Indicator Explained -- with David Moadel
hello folks welcome to looking at the markets with David Modell gonna talk
about fractals today some people have thought that fractals are complicated
but really they're not they're actually pretty simple at least in their basic
form you can get more complicated if you want to but I'm gonna give you the basic
format of fractals and please be aware that fractals do not work 100% of the
time they're not perfect I don't know of any a perfect indicator so please be
aware of that okay and also make your own decisions do your own due diligence
you are in charge of your capital more than anybody else
all right fractals fractals are intended to identify possible reversal points in
the market so they're a reversal indicator again not perfect but they're
that's how they're intended they are typically seen as five candlestick
patterns with the middle candlestick being the reversal can reversal candle
now I've seen more than five some people use for fractals but the basic pattern
is five candlesticks five consecutive candlesticks and the middle one of the
five that's the reversal candle that's where it changes direction otherwise
it's not a fractal and there are two types you have your bullish fractal and
your bearish fractal also known as your down fractal and up fractal now be aware
the bullish one is the down fractal I know that sounds wrong but that's how it
is this is actually the bullish one right here the down fractal it's bullish
because it's going down then reverses upwards so that's supposed to be bullish
and then the bearish fractal is the up one that's the up fractal because it's
going up but then it reverses course and goes down and so that
barish so let's look at the bullish fractal here that's two lower lows okay
so we're looking at the the bottoms including the wicks by the way of the
candles alright so you have a lower low and then another lower low so two lower
lows followed by two higher lows and here's a higher low and then another
higher low alright so lower low or lower low higher low
high or low so it looks like a V basically and that's again including the
wick or the shadow if there is one if there isn't any wick or shadow you just
you're looking at the the bottom of the body here if there is no lower wick
alright so the next move could be higher that's the expectation not necessarily
but that's what you're hoping for okay with a bullish or down fractal alright
and so then the opposite is a bit and so you would take a by the way you would
take a long position at the close of this candle stick if you wanted to play
this as a bullish fractal okay you would you could take a long position when this
closes so if this were green or white it would close right here and you could
take a long position there if you want it to then a bearish fractal or up
fractal as it's called on this chart would be to higher highs followed by to
lower highs so high high high high low or high low or high okay and that middle
candlestick that's the reversal candlestick and the expectation is that
the next move could be lower and so you could take a short position if you
wanted to now be careful shorting alright short selling is dangerous and
risky especially if you don't know what you're doing so if you just wanted to go
along only that's okay be aware of the risks so so if you wanted to go short
you could do it after or at the close of this fifth candlestick here which would
be at the bottom of this one since it's red or black
right there okay you could take a short position if you wanted to
all right so yeah to higher highs and then to lower highs all right and that
is the bearish fractal or up fractal with the expectation of bearish price
action afterwards all right now some people use the bottom of a bullish
fractal the bots including the wicks including the shadows so that would be
right here or the top of a bearish fractal like right here as a stoploss
okay so for example with the bullish fractal remember we talked about how you
might take a long position here at the close of that fifth candlestick here
well so you might you might go long here and you might put your stop loss at the
bottom of that middle wick here the the wick of the middle candlestick here
which is the lowest point of the five candlesticks you might put your
stop-loss here and with this one if you're going to go short at the bottom
of that fifth candle right here where it closed then and take a short position
there you might put a stop loss at the top of the formation including the wicks
so at the top of the middle candlestick right here that might be your stop-loss
there all right so let's look at another example this is kind of a more textbook
example this is more of what a real life example might look like it's it's not so
perfect all right this is the more perfect textbook illustration all right
and so again this is the bullish one and so you might take a long position at the
close of the fifth candlestick which is right here and you might put your
stop-loss right here at the bottom of the
including the wicks of them of the middle candle and for the bearish one
you might take a short position at the bottom of the fifth candlestick if it's
you know assuming that it's a red candle and then
you might put your stop loss at the top of this wick here at the top of the the
middle candle alright so it's not so complicated
really and here's more of a real-life type of example all right can you see
the bearish fractal pattern here five candlesticks and you could take a short
entry now if this were a green candle let's say you would you would not take a
short position at the bottom you because the idea is to take your position at the
close of the fifth candlestick so if this were green then or in this case
blue if we ran up candle in other words you could take a short position at the
top of the body here where it closed and the fifth candle of the pattern and then
put your stop loss at the top of this third wick upper wick here okay and if
there weren't if there was no upper wick than just the top of the body but there
is a wick upper wick so you could put your stop-loss here for your short
position all right so that's really not that complicated is it it's actually
usable again I I just went over the basics there are more complex patterns
I've seen more than five some people use it more than five candles and I've seen
other applications of them but this was your basic primer on fractals hope you
enjoyed it hope you liked it if you want some coaching for your trading or
investing you can email me at David Modell at gmail.com I do offer coaching
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like this one I want to thank you for watching and listening thanks a lot I'll
talk to you again soon