This Fractal Breakout Trading Strategy aims at generating profits on the correct signals for market conditions with much greater accuracy. It waits before entering any trade to acquire confirmation instead of triggering wrong signals that most other strategies would result in.
How the Strategy Functions
A fractal arrow would present a trading opportunity only when the next two candles are to close, confirming the candle pattern. The price will wait for the price at the end of a candle to close well above the high point marked by the fractal arrow. This ensures that there is no false breakout or signal and thus more securely presents an entry opportunity.
With this strategy, the trader is able to focus on identifying trend reversals or continuations. The approach helps avoid premature entries by waiting for confirmation before entering the market. This strategy works well in volatile markets since it reduces the risk of false breakouts.
Why This Strategy Works
Many traders, especially beginners, are trapped into entering trades immediately once a fractal arrow appears and conclude it is the best signal to enter. This frequently ends up in poor outcomes. In this strategy, however, we wait for confirmation.
This simple yet effective modification does make the odds of winning greater. The strategy is based on a breakout strategy since it takes advantage of the fractal pattern formed after two candles confirm that pattern.
Long Position Buy Setup
In a buy setup, when an up arrow appears, the trader waits for the price to confirm the breakout. The entry point is when the price closes above the high of the fractal candle, making sure the breakout is real.
Sell Setup (Short Position)
In the sell setup, after seeing an upward arrow, the trader waits for price to close below the fractal candle’s low that actually confirms the downtrend, and this process doesn’t allow entering trades from spurious signals.
Bullish Example Situations
- An up arrow is seen, signifying a potential upward movement.
- The trader waits for price to close above the high of the fractal candle.
- The entry is taken at the closing price of the first candle that breaks above.
Bearish Setup
- A downward arrow forms, indicating a downward movement.
- The trader waits for the price to close below the low of the fractal candle.
- The entry is taken at the closing price of the first candle that breaks below.
Combining with Moving Averages
To take the strategy to the next level, use the 200-period moving average and the 14-period moving average:
- If the price above the 200-period moving average, the market is in bullish, and the trader looks for buy setups.
- If the price below the 200-period moving average, the market is bearish, and the trader looks for sell setups.
Buy Setup with Moving Averages
- Ensure that the price is in an uptrend, far above the 200-period moving average.
- Wait for fractal up arrow and confirmed breakout above the 14-period moving average.
- Enter the trade when the price closes above the high of the fractal candle.
Sell Setup Using Moving Averages
- Look for a price below the 200-period moving average, and that indicates a downtrend.
- Wait for a fractal down arrow and confirmation of the breakout below the 14-period moving average.
- Enter the trade when the price closes below the low of the fractal candle.
Conclusion
The Fractal Breakout Strategy is highly effective if the rules are followed correctly. This strategy adds confirmation by using the 200-period and 14-period moving averages to identify the market trend and thus avoids false signals and increases the chances of success. It is very simple to implement and is very reliable, especially when applied with patience and discipline.
For those eager to implement this strategy, a downloadable template for charting can be found in the video description, making setup easier than ever.