The Fractals indicator, developed by Bill Williams, marks local price extremes on a chart — points after which price reverses, at least briefly. Unlike oscillators, fractals work directly with the price chart and are often used to find entry points and levels for protective orders.
How fractals are plotted
An up fractal forms when a candle with the highest high is surrounded by at least two candles with lower highs on each side — the classic version requires two candles on the left and two on the right. A down fractal is built the same way but for the low: the central candle must have the lowest low among the surrounding five candles.
The confirmation delay
An important feature of fractals is that the signal is only confirmed after two subsequent candles form, so a fractal appears on the chart with a delay of several periods relative to the extreme itself. That delay is the price of reliability — a fractal doesn't repaint once confirmed, unlike many indicators that react to every new candle close.
How to use fractals for entry points
Up and down fractals mark potential resistance and support levels, and a break through one is often read as a signal for continuation in the direction of the break. Traders also use the sequence of fractals to read market structure: a series of rising down-fractals points to an uptrend, a series of falling up-fractals to a downtrend.
Combining fractals with Parabolic SAR
Bill Williams originally proposed using fractals together with the Alligator indicator and Parabolic SAR: a fractal break in a direction confirmed by SAR dots flipping to the corresponding side of the chart is considered a more reliable signal than either indicator on its own. For more on Parabolic SAR's logic, see the article on the Parabolic SAR indicator.
Fractals as stop-loss levels
Besides entry points, fractal levels are often used as a reference for placing protective stops: a down fractal before a long position, or an up fractal before a short one, sets a logical level, and price reversing past it means the original trade idea has failed to play out.
Limitations of fractals on short timeframes
The multi-candle confirmation delay makes fractals less suited to the shortest binary options expirations, where price can move far from the fractal level before a confirmed signal even appears. On such timeframes, fractals are better used not for entries but for a general read on market structure and trend strength, which can be further checked with the ADX indicator, described in the article on the ADX indicator.
Combining fractals with trend structure
The sequence of fractals pairs naturally with the overall logic of trend following: as long as each new fractal in the direction of the move is higher or lower than the previous one, the trend is considered intact. For more on building trades around this kind of structure, see the article on the trend-following strategy.
Automating fractal detection
Finding fractals on a chart and confirming them after two subsequent candles is easy to formalize as an algorithm. A trading robot for Pocket Option can automatically detect confirmed fractals and combine them with other signal filters — details on the features page.
Conclusion
The Fractals indicator gives an objective way to find local price extremes and levels for entries and stops, but it requires patience due to the confirmation delay. Use fractals together with Parabolic SAR or a trend-strength indicator to improve signal reliability. Automatic calculation is available in the robot's plans.