Fractal Breakout Strategy - by Bill Williams part 2
Summary
TLDRIn 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
- đ 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.
- đ« Avoid counter-trend trades: Do not enter trades that go against the clear trend, especially when the alligator indicator shows a strong directional move.
- đ Identify trendlines: A trendline is confirmed with three touches and breaking this line signifies a potential non-trade zone until a new fractal forms.
- đ« 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.
- đ 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.
- đ 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.
- đ 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.
- đ 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.
- đ Move stop-loss with consolidation: Adjust the stop-loss downward as the market consolidates and forms new fractals, locking in profits and managing risk.
- đ 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.
- đ 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.
Outlines
đ Trading with Fractals: Avoiding Counter-Trend Mistakes
In this segment, Peter from Expert Trading introduces viewers to the Fractal Breakout Strategy by Bill Williams, focusing on identifying trade setups and the importance of trading with the trend. He explains that one should not be overwhelmed by the number of fractal signals and emphasizes the importance of not trading against a clear downtrend. Using the alligator indicator as a reference, Peter advises against entering a trade that breaks the red alligator line unless it aligns with the overall trend. He also discusses the concept of a trendline, which is defined by three touches, and suggests waiting for confirmation on the daily chart before managing trades on the 4-hour chart to avoid false signals.
đ Advanced Fractal Trading Techniques for Forex
This paragraph delves deeper into the intricacies of trading with fractals in the Forex market, where billions of dollars can create false signals. Peter explains the need for confirmation beyond the fractal level, such as waiting for the 4-hour chart to close below the fractal before considering a trade. He advises placing a sell order and waiting for the market to validate the trade by taking out the low of the fractal level. The stop loss is strategically placed above the nearest up fractal and above the alligator line, aiming for long-term trades with the potential of hundreds of pips. Peter also discusses the strategy of moving the stop loss and adding to the position when the market consolidates, as well as the importance of exiting a trade after a series of up fractals to secure profits and manage risk effectively.
Mindmap
Keywords
đĄFractal Breakout Strategy
đĄFractals
đĄAlligator Line
đĄTrade Setup
đĄTrend
đĄTrendline
đĄDaily Chart
đĄ4-Hour Chart
đĄStop Loss
đĄPips
đĄExit Strategy
Highlights
Introduction to part two of the fractal breakout strategy by Bill Williams.
Peter from Expert Trading provides guidance on determining trade setups and directions.
Explanation of fractal signals and the importance of choosing the right fractal to trade.
Avoiding trades during clear downtrends and the importance of trading with the trend.
How to identify a trendline with three touches and the significance of trendline breaks.
Advice against taking trades immediately after a fractal breaks the red alligator line.
The concept of waiting for a fractal to form completely below the alligator for a downtrend trade.
Emphasis on not trading fractals on a time frame lower than the daily chart to avoid false signals.
The strategy of managing trades on the 4-hour chart after a fractal forms on the daily chart.
Waiting for a bar to close below the fractal before considering a trade entry.
The importance of penetration and confirmation of momentum for trade entry.
Setting a sell order after the 4-hour chart closes and waiting for the next bar to take out the low.
General rule for placing a stop loss at the nearest up fractal above the alligator.
Long-term trade strategy aiming for at least 300-400 pips.
Moving the stop loss and adding to the position after a new down fractal forms.
Exiting a trade after observing four or five up fractals to secure profits.
The necessity of discretion in exit strategies and managing risk with strict stop-loss rules.
Example of a trade that resulted in approximately 600 pips following the outlined rules.
Transcripts
hello guys welcome to part two of the
fractal breakout strategy by Bill
Williams I'm Peter from expert trading
docker at UK and I'm going to walk you
through a few trades and how you would
determine a trade setup in which
direction to take it because a lot of
time with the fractals you might be
overwhelmed by the amount of fractal
signals you see a fractal or one of the
oh one of these arrows an up arrow is a
up fractal or down arrow is a down
fractal and which one do you take you
take the up one do you take the down one
which break do you take so what we're
going to do is we're going to take you
through a few trades so let me show you
when not to take a trade well a clear
time not to take a trade is when there
is a clear downtrend so what we've got
here if we move over to here because you
can see this where my mouse is now this
is an up fractal and it is broken above
this red line the red alligator line now
it's been broken so technically
according to the Bill Williams book you
should enter that trade you should enter
it here but then it only goes up a
little bit and then really plummets down
now the way to avoid this it's just not
to enter the trade you do not enter a
trade which is counter-trend always
trade with the trend the trend is your
friend you must have heard that the
trend is your friend but not all the
time
okay in this case it is your friend
right so we've got is we've got a
trendline here alright what constitutes
a trendline it's three touches 1 2 3 and
then when it breaks this trendline right
we don't take a trade we don't take an
up trade we don't take a down trade we
don't take any trades at all right until
another fractal forms below the
alligator so completely below it the
book says when it for when it breaks
below the red alligator line but we say
no we don't we don't want that ok so
let's just get rid of this line so you
can see more clearly right so what we're
going to do is we're going to take this
example so we don't take this fractal
we'll take this one
so when do we take it right so we're in
a downtrend okay you can see here it is
a downtrend
and it's below its company fractals
completely below the alligator alright
so here's the fractal so according to
the Bill Williams book you have to put
it five points or five pips below the
actual fractal formation right we don't
think you should do that which think you
should wait for another sort of
confirmation and we actually just should
think that you wait for the daily chart
to form the fractal and then you manage
it on the 4-hour chart and this is
essential never trade fractals on a time
frame lower than the daily chart okay
we don't recommend it because you'll get
overwhelmed by the the number of full
signals that you get okay so here's a
fractal and there is where we want it we
want it on one point six oh six five now
let's go over to the 4-hour chart okay
and let's see where that is so that's
back here right so that's over here over
here here it is alright so this is the
fractal we saw one point six oh five
three rounded by that level six zero six
five and this is where the fractal is
formed now the only time so let's add
this here so this one what we want to
enter here right so that is the daily
fractal and we manage it on the 4-hour
chart so when it breaks the fractal
which it does it breaks it on this bar
here with a horizontal line of the
crosses it breaks it on that line okay
now when it breaks it we don't enter the
trade we wait for the bar to close below
the fractal if it doesn't go briolette
close below the fractal we've got no
trade even though it's signal this would
save you a whole load of false signals
and false trades you want to wait till
that candle sorry not a nor candle till
the bar closes below the fractal let's
zoom in here
and go down to where the fretful is
right so let's just see here it is yeah
right so we want to wait for it to close
below so it has closed below so here it
closes below and we say okay cool we
enter the trade now no no you don't you
don't into the trade so it's closed
below but we want more confirmation than
that what you need is you need a
penetration and then confirmation of
momentum so once this bar closed below
you're going to wait for the next bar to
take out the low of this bar so I know
what you're thinking oh this is
confusing but it's essential this is
another thing that will endure that will
save you that will save you a lot of bad
trades because the forex market is so
big because they're trading about three
trillion a day I mean last year there
was what there were one or two days when
I went out to a trillion turnover in one
day when you get a push for a trend it's
a push of billions and hundreds of
billions of dollars into a direction so
you get a lot of false signals it has to
go up like a wave and then come down
right so therefore you need the
confirmation the penetration right and
the clothes below this level this
fractal level on which is from the daily
chart this is the 4-hour chart remember
because it's where we're managing the
trade and once it closes you're waiting
for the next bar to take out that low so
what you can do is once the 4-hour chart
has closed there you can actually put a
sell order in to go in here and then
what you do is you just wait you just
wait for it to take down that low so
where do we put our stop loss general
rule that we normally use is put your
stop loss at the nearest up fractal so
what we want is we like to also put it
above for the alligator so here's the
nearest up fractal and it's above the
alligator so we will put our stop loss
here it's quite a long fast stop but
these are long-term trade so you're
looking for a lot of pips you're looking
for about you know at least three four
hundred pips on these trades
okay so then what happens you go down
and it goes down here forms another down
fractal and then goes back up and forms
another up fractal cut these couple of
up fractals are just completely invalid
because it moves down and into
consolidation and it goes up here so
what this offers us is an opportunity to
move our stop once this moves down so
what you do you'd move your stop loss
from up here to down here it's still
above the alligator and then down here
you can add because this is a down
fractal you can add to your position you
can enter the trade
again so add to your position and then
what we're waiting for is we're waiting
for it to break the low of this new
fractal that has been formed break the
low it's sort of did it on that one it
generally did it on this one and then
took it out so we'll enter the trade
down here move your stop loss to up here
and then wait for the trade to make its
move and then it goes down to here and
then generally if we say if we see I
don't know about four or five up
fractals after we see about four or five
up fractals before moves ended we tend
to exit the trade and because you know
we don't want to stay in here forever
because it could move back up and all
our hard-earned pips could be lost so
over here I mean on this first trade you
would have made what is that
one 666 if you exited around here you
know see that's that's 400 400 and
something pips and then add to that from
here to there
that's another 200 and something pips
are all together in this move you would
have made about 600 pips if you adhere
to our rule so I mean you need to use a
little bit discretion on the exit here
the stop-loss there are very strict
rules for the stop-loss and managing
your risk but over here you need to
ensure that after about four maybe five
up fractals before you really see a
downward push exit the trade take your
profit or make your stop extremely tight
so here's one example for a trade
and I hope you learn something out of
that
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