Fractal Breakout Strategy - by Bill Williams part 2

Summary

In this tutorial, Peter from Expert Trading UK explains the Fractal Breakout Strategy by Bill Williams. He guides viewers on identifying trade setups, emphasizing the importance of trading with the trend and avoiding counter-trend trades. Peter advises against trading on timeframes lower than the daily chart due to overwhelming signals. He also discusses entry and exit strategies, including waiting for confirmation after a fractal breaks and adjusting stop losses to manage long-term trades effectively, aiming for substantial pips.

Takeaways

• 📈 Trade with the trend: It's important to align trades with the existing trend rather than against it, as the trend is typically a trader's friend.
• 🚫 Avoid counter-trend trades: Do not enter trades that go against the clear trend, especially when the alligator indicator shows a strong directional move.
• 📊 Identify trendlines: A trendline is confirmed with three touches and breaking this line signifies a potential non-trade zone until a new fractal forms.
• 🚫 Do not trade below the daily chart: Fractals should not be traded on timeframes lower than the daily chart to avoid being overwhelmed by false signals.
• 📍 Wait for fractal confirmation: After a fractal is identified on the daily chart, wait for it to be confirmed on the 4-hour chart before considering a trade.
• 📉 Enter trades on bar closure: Wait for the bar to close below the fractal level for a down fractal trade, ensuring more confirmation and reducing false signals.
• 📈 Look for momentum penetration: After the bar closes below the fractal, wait for the next bar to take out the low of the previous bar, indicating momentum.
• 🔄 Manage trades with stop-loss: Set a stop loss at the nearest up fractal, preferably above the alligator line, to manage risk in long-term trades.
• 📉 Move stop-loss with consolidation: Adjust the stop-loss downward as the market consolidates and forms new fractals, locking in profits and managing risk.
• 📈 Add to position on fractal breaks: When the market breaks the low of a new fractal, consider adding to the position to increase potential profits.
• 🏁 Exit strategy with multiple fractals: Use discretion to exit trades after observing a series of fractals, typically four or five, to secure profits before a potential reversal.

Q & A

What is the main topic of the video script?

The main topic of the video script is the 'Fractal Breakout Strategy' by Bill Williams, focusing on how to determine trade setups and which fractal signals to follow.

Who is the presenter in the video script?

The presenter in the video script is Peter from Expert Trading.

What is a fractal in the context of the video?

In the context of the video, a fractal refers to a signal represented by an arrow (up arrow for an up fractal and down arrow for a down fractal) used in the Fractal Breakout Strategy.

Why should one avoid trading against the trend according to the video?

According to the video, one should avoid trading against the trend because it can lead to false signals and losses, as the trend is considered your friend in trading.

What is the significance of the red alligator line in the strategy?

The red alligator line is significant as it represents a trend indicator; one should not enter a trade that is counter to the trend indicated by this line.

What constitutes a trendline in the context of the strategy?

A trendline in the context of the strategy is formed by three touches on a chart, and a break of this trendline indicates a potential point to avoid taking trades.

Why is it recommended to wait for confirmation before entering a trade?

It is recommended to wait for confirmation before entering a trade to avoid false signals and to ensure that the market is indeed moving in the direction indicated by the fractal signal.

What is the recommended timeframe for trading fractals as per the video?

The video recommends not trading fractals on a timeframe lower than the daily chart to avoid being overwhelmed by the number of signals.

How should one manage a fractal trade according to the video?

One should manage a fractal trade by entering it on the daily chart and managing it on the 4-hour chart, waiting for the price to break and close below the fractal level.

What is the general rule for placing a stop loss in this strategy?

The general rule for placing a stop loss is to put it at the nearest up fractal, ensuring it is above the alligator line.

When should one consider exiting a trade according to the video?

One should consider exiting a trade after about four or five up fractals have formed, indicating a potential end to the downward push in the market.