The fractal indicator is a technical analysis tool used to identify potential market tops and bottoms in price action. It looks for opportunities to buy after a bottom and sell after a top. It is one of the most powerful and practical indicators applied to forex and stock trading.

The fractal indicator is commonly used with other technical indicators to generate trading signals for traders. It was introduced in the 1980s by Bill Williams, a noted technical analyst and author. His research showed that by observing historical price movement, it is possible to identify high probability reversal patterns that can be used to anticipate future market movements.

To calculate the fractal indicator, the trader must locate the most recent market bottom or top. Once the previous tendencies are identified, the trader will be able to anticipate the next turning points. Because fractal trading relies heavily on identifying the current trend, it is important to examine the longer time frames and be familiar with multiple time frame analysis.

To determine whether the price trend is changing or not, the trader needs to look for “fractals” or five-bar patterns. A bullish fractal is identified when there are two higher lows on either side of a low point. Similarly, a bearish fractal occurs when there are two lower highs surrounding a high point. These patterns usually appear in the form of down arrows for bearish fractals and up arrows for bullish fractals.

Apart from providing entry and exit signals for traders, the fractal indicator also helps traders set their stop losses in a risk-controlled manner. This can be especially useful for long-term traders, who may need to run trades for a significant period of time.

The fractal indicator can be a powerful tool for traders looking to capitalize on short-term price movements. However, it is important to note that it is a lagging indicator and traders should use it in combination with other technical indicators for better accuracy. With proper usage and understanding of the indicator, traders should be able to capitalise on potential price swing opportunities.