What Is Fractal Breakout Strategy?
Are you or your friends looking for a good price action strategy? We have good news for you! A fractal breakout strategy is a great option.
Price action trading strategy
However, let’s first learn more about price action trading strategy.
It is important to note that price action describes the characteristics of a security’s price movements. To cut a long story short, price action is a trading technique. Notably, it allows a trader to read the market and make subjective trading decisions based on recent as well as actual price movements, rather than relying only on technical indicators.
As price action doesn’t take into account the fundamental analysis factors and focuses more on recent and past price movements, the price action trading strategy relies on technical analysis tools.
Do you know who uses the above-mentioned strategy?
As it is an approach to price predictions and speculation, this strategy is used by speculators, retail traders, and arbitrageurs. What’s interesting, it is also used by trading firms who employ traders.
It is possible to use price action trading on various securities, including equities, forex, bonds, commodities, derivatives, etc. We also need to note that it is more suitable for short-to-medium-term limited profit trades rather than long-term investments.
The vast majority of traders think that the market follows a random pattern, and there is no clear systematic way in order to define a strategy that will work all the time. However, price action trading is quite popular in the trading community.
Now, let’s get back to the fractal breakout strategy.
First and foremost, we need to explain what a fractal is.
Fractals refer to recurring patterns that occur in the middle of a large and highly chaotic price movement. It is important to note that fractals consist of a number of bars, more precisely, 5 or more bars.
How are fractals used in trading?
Hopefully, the vast majority of trading chart platforms offer the option of using fractals as a trading indicator. As a result, traders don’t have to worry about technical aspects. All traders need to do is use fractal as the indicator for the chart.
Fractal breakout strategy and its importance
Let’s learn more about the fractal breakout strategy.
The strategy mentioned earlier involves determining the price of the last fractal top then enter a trade once the price surpasses the last fractal top.
The fractal breakout strategy works best on weekly or monthly time frames. Furthermore, the fractal breakout strategy can work on daily and other time frames.
As in the case of all trading strategies, you should pay attention to risk factors. You need to be careful with the fractal breakout strategy.
Importantly, the past performance of the above-mentioned strategy doesn’t indicate that the strategy mentioned earlier will achieve the same results on a regular basis. So, you need to take into consideration various factors before making a final decision.
