Pre requisite: https://unofficed.com/topic/quantifying-swings/
In this section, You will learn –
Between the white lines, there are 5 candles.
As a trader, You can use fractals to get an idea of the potential direction a price can move in.
There are two types of fractal –
An Up Fractal is formed when the middle candle is the highest point in the five candle pattern.
Connection with Bounce Theory:
As You can see, The peak in the Bounce Theory is called an Up Fractal.
Fractal Indicator Formula
The high of nth candle will be considered Peak or Up Fractal in a said time frame if –
For an Up Fractal, We use the following formulas:
For a Down Fractal, We use the following formulas:
n represents the high or the low of the current candlestick.
The Down Fractal is the opposite of the Up Fractal.
The Down Fractal is formed when the middle candle has the lowest point in the five candle pattern.
Because the Fractal is a 5 candle pattern, the 5th candle must be completed and close before the fractal can be used to make any trading decision.
So you must wait for the pattern to complete in order to make sure that the fractal is confirmed.