Do you know how to trade with the best Fractal Trading Strategy? This Fractal Trading Strategy will answer all your questions about fractals. You will learn how to use this strategy step by step to hit consistent winning trades.
Today, we will dive into a strategy dealing with the Bill Williams Fractal Indicator / Bill Williams Alligator.
Before we start trading using fractals profitably, I want to give you some background information on Bill Williams himself. This will help you understand the importance of this special indicator. Also, read about Scaling in and Scaling out in Forex.
Bill Williams Brief Review: Bill Williams Trading Fractals
Mr. Williams developed a unique theory from combining Chaos Theory with trading psychology. Along with the effect they have on market movements. Bill Williams extensive knowledge of stocks, commodities, foreign exchange markets, led him to develop many indicators, including fractal trading patterns.
These include the Booster / Takeover Oscillator, Alligator, Awesome Oscillator, Fractals, Gator Oscillator, and Market Facilitation.
Each indicator has a specific value. They are great to trade if you understand the basic concepts of each.
The market view is that, in order for you to make money trading, you must be able to understand the basic market structure. You must be aware of the internal parts of the market, called dimensions.
These dimensions include the following:
- Fractal (phase space)
- Zone (phase energy and power combination)
- Momentum (phase energy)
- Deceleration / Acceleration (phase)
- Balance Line (odd draw)
I could go on for a while about Bill Williams. But the important part to note about all of this is that the market analysis and perspective is different. It’s a strong indication not out of date, as some claim. They work well when you use the right strategy.
His indicators come standard on most trading platforms. This clue will likely be under his name, the “Bill Williams,” or “Williams” marker.
Indicators Used for Fractal Blaster Trading Strategy
Bill Williams Fractals: How do fractal indicators work? Well, these are just arrows that are above or below the candle on the chart. This fractal is formed when five repeating bars are aligned in different ways. You need the fifth bar to close to find the highest high or lowest high. We will go into more detail about this indicator and show you how to use the alligator indicator. You can find fractal indicator on mt4 or other popular trading platform. No need to run the fractal indicator download as it will be there for you.
Bill Williams Alligator: How does the Bill Williams alligator indicator work? This indicator consists of 3 specific moving averages.
The 13-period row is called Jaw (blue)
The 8-period line is called a tooth (red)
The 5-period row is called the lip (green)
We’ll go further into this hint in a bit. Each of these lines has a specific name. This is because we will refer to them later in the strategy.
Here’s what alligators look like:
Fractal Trading Strategy Steps: Fractal Trading Techniques
We have developed a strategy known as the Big Three Trading Strategy that uses three specific moving averages as well if you want to check that out later.
These are just two of the 5 leads that Bill Williams built.
As you can see above, these are all 5 powerful Bill Williams indicators that are standard on your trading platform.
I like each of these 5 indicators, but after thorough research and testing, the alligator and fractal indicators are not only the easiest way to trade with the indicator but very powerful with the right strategy.
Step #1: Applying Both Fractals and the Bill Williams Alligator Indicator to Your Chart
The first step you want to do is, of course, to throw this important indicator on your chart. As I’ve said, they come standard on every trading platform that I’m aware of so this should be very easy for you to do.
Once you do this your chart will look like this:
Step #2: Bill Williams Trading Fractals: Identify where the Fractal Has Formed (above or below the alligator’s teeth)
Note ** In this example we are using a buy trade entry so all these rules are for a buy entry.
Ok, so let’s get into what fractals are all about.
A fractal shows a bottom or top. A basic fractal indicator consists of at least 5 bars. So when you look at a fractal here is what might happen to appear:
- There is a series of at least five rows in a row, with the highest high in the middle and then the two lows on either side.
- There is a reversal series of at least five consecutive lines when the lowest low is in the middle and the two higher levels are on either side (which forms a selling fractal)
- A fractal can appear with only one candle to its right but be aware that this is an unconfirmed fractal as price action can break through levels. Therefore, in order for the fractal to appear and remain on the chart forever, the trader must wait for 2 candles to the right of the fractal.
- Fractals have so-called high and low values. This is indicated by an up or down arrow.
Let’s get into our chart example for this fractal blaster trading strategy.
Above is the unique alligator indicator line on the chart. Now you need to know where the fractal is placed on the candle for this strategy with respect to this special indicator.
Here are the fractals we want to pay particular attention to:
I drew a yellow circle on this particular fractal. This fractal appears on this candle ABOVE the red line or tooth (crocodile) This is the #1 criterion for the Fractal Blaster strategy.
In a BUY trade, the Fractal must appear on the candle ABOVE the red line (crocodile teeth).
What happens here is that the fractal forms a new high to the previous fractal and therefore makes the fractal appear on the candle.
To go to step #2 (for a BUY trade), the fractal must show a fractal and appear above the alligator’s teeth.
Step #2: Price action must be above the Alligator’s Teeth for at least 5 consecutive candles (Buy Trade)
This is where all the magic happens.
More often than not when a fractal appears like the one above, the price action is still “flat”. This means that there have been no real escapes in the past. You can also trade with the breakout triangle strategy.
The reason this strategy needs to wait for at least five consecutive candles is that this is the time where there is a pull back forming, a reversal may be forming, or price action is still consolidating in a flat market. Any one of them is not pleasant if you are looking for a big upside move to form on the chart.
As you can see, the price action remains calm and does not rise or fall drastically these five candles. That is what you need to look for when trading this strategy.
Before we look further into this strategy, this is what will make the strategy “reset” and cancel the BUY entry of future trades.
- Resets if: A fractal seller appears below the Alligator Teeth line before the position is opened. Like this:
As you can see if this happens in the BUY trade example, then we will tell ourselves that this buy trade is invalid and we should look elsewhere. The reason is that this can trigger a bad long trend if you try to go here. - Resets if: Any two lines of the Alligator indicator have crossed after the fractal candle identified in Step #1. Like this
Step #3: Price Action Needs to Break Above the Fractal Candles Distinguished in Step #1
Once you see that the five candles in a row do not make a drastic move downwards and stay between the high of the fractal candle and the alligator’s teeth, then we go ahead and place an entry order.
You can make entries this way, or if you’re sitting in front of a chart you live with, you can make market orders as well. Either has to be done because the same criteria are required.
This is what it will look like:
As you can see, I marked where our original fractal was found. What happens after that is that five or more candles appear that do not float to the alligator’s teeth, the alligator line does not cross, and the price action finally breaks the fractal candle to trigger a trade.
Take Profit Target / Stop Loss.
You can try variations of this strategy as far as taking profit and stop loss.
Exit the trade when the two alligator lines cross each other.
It is highly likely that the crocodiles will go back to sleep and the price action will either head the other way or consolidate.
This trade will land you a winner of 70 pips.
Place your stop loss below the previous support/resistance area. Check out my other articles here that talk about these important areas.
This will give you the best chance to save the trade if the price action turns on you and turns into a downtrend. It can “bounce” this area and return to the upside.
Above is the BUY entry criteria. Selling will be the same rule only the other way around.
Here are the Steps of Fractal Trading Strategy in Action:
Sell Trade Steps:
Step #1 Apply Both the Fractal and the Alligator Bill Indicator to Your Chart
Step #2 The bottom Fractal must appear below the Alligator’s teeth and the price Action must be below the Alligator’s Teeth for at least 5 consecutive candles.
Step #3 Price Action Needs to Break Below the Fractal Candle Distinguished in Step #1
Step #4 Exit the trade when the two alligator lines cross each other.
The conclusion
These basic fractal trading techniques will lead you in the right direction if you have been looking for a great strategy to use with this indicator. There are many strategies you can use with this indicator, but in our experience, we like this combination of the Bill Williams indicator.
Many people think that every indicator “lags” and rarely shows profitable participation. The Fractal Trading Strategy uses a combination of price action analysis that complements this great indicator. So, if you’re one of those skeptics, give this strategy a try and let us know your results. We love hearing your feedback!
PS If you’re not a believer in indicator strategies, check out our price action pin strategy.
Thanks for reading!
Please leave a comment below if you have any questions about Fractal Trading Strategies!