Bill Williams indicators
Fractals (Bill Williams)
Little arrows that mark local tops and bottoms: a high with two lower highs on each side, or a low with two higher lows.
The idea in plain words
Prices move in swings. Fractals mark the turning points of those swings, giving you natural levels where the market changed its mind, and a breakout above the last up-fractal shows new strength.
How it is calculated
An up fractal is a candle whose high is higher than the highs of the two candles before and the two after. A down fractal is the mirror image for lows.
Up fractal at candle i: high(i) > high(i±1) and high(i) > high(i±2)
Down fractal: low(i) < low(i±1) and low(i) < low(i±2)How to use it
- Buy stop just above the latest up fractal, sell stop just below the latest down fractal (Williams' breakout entries).
- Use recent fractals as stop-loss levels.
Drawing conclusions
- Because two later candles are needed, a fractal appears two candles after the actual high or low.
Example
On a 1-hour chart an up fractal forms at 1.0870. An hour later the price breaks above 1.0871: a breakout entry.
Prices in examples are illustrative.
Watch out for
- Many small fractals form in quiet markets; higher timeframes give more meaningful ones.
A little history
Bill Williams, "Trading Chaos" (1995), borrowing the word from chaos theory.
Educational content only. No indicator or pattern predicts the future, and nothing here is investment advice.