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Fractals

Fractals as an indicator in forex identify change of sentiment and thus reversal points in the market and gives an idea about the direction in which the price will develop. Since fractals highlight points at which price failed to hold and therefore reversed, it serves as an indication of support and resistance levels. If a support/resistance level is broken it signals trend strength, and if price is contained within these support/resistance levels then a ranged market has developed.

An up fractal (also called a buy fractal) forms when a local high forms within a period of five candles, and a down fractal (also called a sell fractal) forms when a local low forms within a period of five candles. A local high only forms when the two preceding and proceeding candles have lower highs; conversely a local low only forms when the two preceding and proceeding candles have higher lows. A series of higher up fractals and higher down fractals is the equivalent in definition to an uptrend in that higher highs and lows are forming. Conversely a series of lower up and down fractals is the equivalent of a downtrend in definition in that lower highs and lower lows are forming.

EUR/USD Daily Heiken Ashi chart with an up-fractal


As illustrated in the above graph, an up fractal formed on the local high (3) when the two preceding bars (1 & 2) and two proceeding bars (4 & 5) had lower highs than the third bar. The up fractal was clearly followed by a four-day downtrend.   

EUR/USD Daily Heiken Ashi chart with a down-fractal

As illustrated in the above graph, a down fractal formed on the local low (3) when the two preceding bars (1 & 2) and two proceeding bars (4 & 5) had higher lows than the third bar. The up fractal was clearly followed by an ongoing uptrend.  


 In the adjacent figure, in a downwards trend a down fractal forms indicating the formation of a resistance level towards the trend, followed by the formation of an up fractal during a retracement signalling the formation of a support level. If price breaches the resistance level after the reversal at the up fractal, then it is a signal that the trend has strength and momentum and will likely continue in the direction of the prevailing trend.




At their inception, fractals have been defined as having two quantifiable properties; self-similarity and dimension. Self-similarity is the ever-repeating nature of fractals at various dimensions where the differing dimensions are differing levels of time in which price action occurs. The macroscopic timeframes will supersede the lower timeframes, meaning that a fractal formed on a higher timeframe will be present at lower timeframes, but fractals formed at lower timeframes may not necessarily be present at higher timeframes. The fractal thus fulfills the two quantifiable properties; self-similarity and dimension. The following two graphs illustrate this principle; the fractals that are present on the daily chart are also present on the 4-hour chart as ultimate highs and lows and will be present even in lower timeframes, however the 4-hour chart has many more fractals that do not necessarily reflect on the daily chart.

EUR/USD Daily Heiken Ashi chart with Fractals as at 2016/10/23

EUR/USD 4-Hour Heiken Ashi chart with fractals as at 2016/10/23




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