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Trading on a fractal reversal

Today we will look at a strategy based on non-standard indicators. A modified version of Fractals and Alan Hull’s Moving Average. Bill Williams was the first person in the trading world to pay attention to the fractal structure of price charts. He reflected this in an original strategy, and also developed special indicators for market analysis. He is the creator of the Awesome and Gator oscillators, as well as the Alligator, Fractals, and a number of other indicators. They are included in the range on the Binomo trading platform.

Overview of the indicators used

At first glance, the list of indicators on the trading platform contains only 14 instruments. However, in reality, there is a bigger choice thanks to multiple types of moving averages, including some exclusive developments from famous traders. In our case, we are using two rare indicators. Let’s look at each of them in more detail.

  • The fractal channel. A modified tool based on the original indicator from Bill Williams. On the Binomo platform, the standard version of Fractals is presented as an auxiliary function of the Alligator indicator (there is a check mark in its settings). The difference is the formation of a price corridor based on the points of local price extremes. The fractal channel forms a visual corridor on the chart. The signal is the point of entry or exit of the price beyond this corridor.
  • The Hull Moving Average (HMA). Developed by Australian trader Alan Hull, who took on the task of correcting the main drawback of Moving Averages. An increase in the averaging period leads to an increase in the accuracy of signals, but also an increase in their delay. A decrease in the period forms the opposite situation—the signals do not lag, but their accuracy decreases. Alan Hull developed a unique indicator formula with minimum lag but a high percentage of signal accuracy.

This version of Moving Average from the Australian trader is, of course, not ideal. But the effectiveness of the HMA signals is really higher than the standard SMA or EMA. However, this effect is noticeable only in conditions of sufficient market volatility. Therefore, an irreplaceable component of this strategy is the Fractal Channel, which highlights the key points of a trend reversal.

Trading terminal setup

The Binomo platform interface is designed in such a way that the trader’s attention is not distracted by any unnecessary elements. Setting up the terminal will take about 1-2 minutes. All you need to do is add the necessary indicators on one of the charts so that in the future the settings will be automatically copied when new assets are opened.

Step-by-step instructions for configuring the Binomo terminal:

  1. choose any profitable asset with good market activity;
  2. set up the chart for an interval of 30 seconds or 1 minute, activate candlestick mode;
  3. add Fractal Channel and a Moving Average curve of the Hull type;
  4. set up the amount of the initial investment in trades.

Set the period of the Hull Moving Average to 36. It can be any color, but it should stand out against the other chart elements. It is recommended to add a fill color for the fractal channel lines: the upper one can be green, and the lower one red. In this combination, the optimal color for the HMA would be yellow.

Trading signals on the strategy

Trading is carried out on a 30-second chart with trades for 2 or 3 minutes. If a 1-minute time frame is set, the expiration period should be increased to 5 minutes. On charts with a high level of volatility (assets from the index category, including CRY IDX), you can try to trade on an interval of 15 seconds with trades for 1 minute.

Trading on the strategy:

  • signal for an increase — the price on the chart and the HMA should be below the border of the fractal channel, and then enter within it, market entry at the point of intersection of the lower fractal with the price and the Moving Average line;
  • signal for a decrease — the identical situation with a mirrored correction when then uptrend reverses. The price along with the HMA must first go beyond the upper border, and then return within the fractal channel. At this moment, the purchase of a contract for a decrease is made.

A clear illustration of this is shown in the screenshot of the chart from the Binomo terminal. The reversal signal should be preceded by a sufficiently intense price jump. Several complete candles should form outside the price range. A slight deviation or weak breakout indicates moderate strength in the price trend. Signals like these are best ignored.

Caution! This article is not intended to be investment advice. No strategy can guarantee 100% correct trading results. A successful trading result in the past is not a guarantee that it will be repeated in the future. Any information contained in this article is for informational purposes only.

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