Step #1: Apply Both Fractals and Indicator on Your Chart
The First step you are going to want to do is, of course, throw these important indicators on your charts. As I have said, they do come standard on every trading platform that I am aware of so this should be very simple for you to do.
Once you do this your chart will look like ours.
Step #2A: Trading Fractals Bill Williams: Identify where the Has Formed (above or below teeth)
Note** In this example we are using a buy trade entry so all of these rules will be for a buy entry.
Ok, so let’s get into what the fractals are all about.
The fractals indicate a bottom or a top. The basic indicator is composed of a very minimum of 5 bars. So when you see a here is what may have happened for it to appear:
*There were a series of at least five successive bars, with the highest high in the middle and then the two lower highs are on both sides.
*There was a reversing series of at least five successive bars when the lowest low is in the middle and the two higher lows were on both sides (which forms a sell )
*Fractals can appear with only one candle to the right of it but be aware that this is an unconfirmed because the price action may pierce through the level. So in order for a to appear and stay on the chart forever, the trader must wait for 2 candles to the right of the .
*The fractals have what’s called a high and a low value. This is indicated by the up or down arrows.
Now you need to be aware of where the fractals are being placed on the candles for this strategy concerning this special indicator.
In a BUY trade, the must appear on a candle ABOVE the red line ( teeth).
What is happening here is that the forms a new high to the previous and therefore made an up appear on the candles.
In order to go to step #2B (for a BUY trade), the must show an up and be appearing above the teeth.
Step #2B: The price action must stay above the Teeth for at least 5 consecutive candles (Buy Trade)
This is where all the magic happens.
More often than not when a appears like the one above, the price action is still “flat”. This means there has not been a real breakout in the recent timeframe. You can also trade with the breakout triangle strategy.
The reason this strategy has to wait for at least five consecutive candles is that this is the time where either there is pull back that is forming, a reversal may be forming, or the price action is still consolidating in a flat market. Any one of those does not sound pleasant if you are looking for a big upward move to form on the chart.
As you can see, the price action stayed quiet and did not move up or down drastically these five candles. That is exacly what you should see when trading this strategy.
Before we look any further into this strategy, here is what will make the strategy “reset” and invalidate a future trade BUY entry.
Resets if: A sell appears below Teeth line before a position is opened.
As you can see if this would have happened in our BUY trade example, then we would have told ourselves that this buy trade is invalidated and we should look elsewhere. The reason is that this could trigger a long which would not be good if you are attempting to go long here.
Resets if: Any of the two lines of the indicator have crossed after the identified candle in Step #1.
Step # 3: Price Action Need to Break Above Candle That was Distinguished in Step #1
Once you see that five consecutive candles did not make a drastic move to the downside and stay in between the high of the candle and the teeth, then we go ahead and make an entry order.
You can make an entry this way, or if you are sitting in front of your charts live with this occurs, then you can make a market order also. Either one is ok to do because the same criteria are needed.
As you can see, I marked where our original was discovered. What happened after was that there were five or more candles that appeared that did not drift down to the teeth, the lines did not cross, and the price action finally broke above the candle thus triggering a trade.
Take Profit Targets/ Stop Loss.
You can try variations to this strategy as far as the take profit and stop loss is concerned.
Exit the trade when two of the lines cross over each other.
This most likely means the is going back to sleep and the price action will either head the other way or consolidate.
Place your stop loss below prior areas.
This will give you the best opportunity to salvage a trade if the price action would to turn on you and turn into a . It may “bounce” off these areas and head back in a direction.
The above were the BUY entry criteria. A sell would be the exact same rules only the opposite.
Sell Trade Steps:
Step #1 Apply Both Fractals and Indicator on Your Chart
Step #2 A down must appear below teeth and The price action must stay below the Teeth for at least 5 consecutive candles.
Step # 3 Price Action Need to Break Below Candle That was Distinguished in Step #1
Step #4 Exit the trade when two of the lines cross over each other.
These basic trading techniques should lead you in the right direction if you have been searching for a great strategy to use with these indicators. There are many different strategies you can use with these indicators, but in our experience, we like this combination of the indicators.
Many argue that every indicator is “lagging” and rarely show you profitable entries. The Trading Strategy uses the combination of price action analysis that complements these great indicators. So if you are one of the skeptics, give this strategy a try and let us know your results. We love hearing your guys feedback!