The Williams fractal indicator was developed by Bill Williams, author of Trading Chaos, a series of books based on chaos theory in the trading of stocks and commodities.
Prices in the market may seem random, but they actually form repeating patterns and trends. A fractal will form when a particular price pattern is occurring on a chart. (Click this link to access an economic calendar for your trading strategies )
Fractals are composed of five or more bars. The middle bar depicts the highest high or the lowest low. In the Williams fractal indicator, an arrow appears above or below this middle bar when a change in the trend of the price is indicated. If the chart is observed for a longer time period, this makes the reversal indicator more reliable.
When there is a pattern with the highest high in the middle and two lower highs on each side, this signifies a downturn or a bearish turning point. An arrow, called the sell fractal, will appear at the bottom of the chart, pointing downwards in this case.
When there is a pattern with the lowest low in the middle but two higher lows on either side, this indicates an upturn or a bullish turning point. In this case, an arrow, the buy fractal, will appear at the top of the chart, pointing upwards.
The Williams fractal indicator can signify support and resistance levels, high and lows, and potential entry points.
Pros To Using The Williams Fractal Indicator
- It is a simple indicator to use to indicate potential signals and alerts.
- Indicates potential support and resistance levels for buy and sell levels.
- A good indicator of trends.
- Indicates potential breakouts.
Cons To Using The Williams Fractal Indicator
- This lagging indicator is not a good performer as a stand-alone indicator. The Williams Fractal strategy can be used with the inclusion of the Fibonacci retracement levels or other indicators or strategies.
- Does not perform well in a sideways performing market.
- Fractal formations can provide misleading information, especially, in a chart that has a short time period.
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