Fractals: the Leading Indicator?
“History repeats itself.” To take advantage of historical price patterns, in this article, fractals are instrumental in (1) forecasting the next profit-taking positions and also in (2) assessing the sustainability of a trend.
Before delving into a fractal strategy, some might wonder why fractals can be a leading indicator for live trading. The matter of fact is that fractals are lagging indicators, just as moving averages, which will be available only after the fact (post hoc). For this reason, the fractal strategy presented in this article is not using fractals formed within the most recent ten candlesticks. Instead, only price levels formulated by fractals from the very beginning to the most recent 11th candlestick will be selected as a kind of support and resistance levels to aid decision making in the fractal strategy.
1) Forecasting the Next Profit-Taking Positions
To keep the illustration simple at this stage, let’s assume a trader will open a buy position only if the expected profit and expected stop loss are 40 pips and 15 pips respectively.
First of all, the strategy takes the entry price as given …