Easy Fractal Breakout Strategy

Were the charts I posted what you had in mind? I want to make sure they are clear. I see them everyday so I am used to them.

Yes, thank you very much Ellis, very clear and easy to understand charts. Looks like I have some things to check out. Glad you posted some of the filters you use since I'm trying to find a way to make my trading more discretionary.

Questions for you about your reversal trades. Do you always use the fibs to take reversal trades? Also do you always look for them around 5pm est and at London open like you showed? Just trying to figure out if you only trade reversals at these times or if you do it throughout the day? What about breakouts, trade those all throughout the day? Sorry for all the questions, just happy to see someone trading the way I try to do.

One last thing, do you think you can post a template of your chart?

Thanks,
trublu

Attached is the template you asked for. As for your questions ...

I do not always use fibs for take profits on reversals, a lot of the time I am trading on a 5 minute time frame and the trade only allows for 10 pips before hitting another pocket of resistance or support ( from an earlier fractal or psych level).

I currently trade the Eur/Usd from my main trading account, usually from 6 am est to 9 or 10 am est. Price tends to move quickly during this time period. I always avoid news events, but will enter on a signal as early as 5 minutes after a news event if I understand the news event and the price action.

I also am trading the Gbp/Usd at other time of the day on my mini account. I am still getting used to the price action behavior of that instrument.

This methodology works well during any open session (when charted on the smaller time frames) and occasionally I will take trades during the afternoon Ny session or Asian and London session, depending on what I am doing that day.

When I trade on the smaller time frame I try not to get greedy and limit my time in the market. This way my exposure to a sudden market change due to unexpected events is limited.

Thanks again Ellis, so what other time frames are you trading other than the 5 minute?

One thing I was thinking was waiting for a trend to develop and only trade in direction of the trend, seems like it should work, plus it's an extra filter so I don't over trade.

Thanks for the template, like the Bears colors on it haha.

trublu

I also trade a bit on the 4 hour charts, but it is difficult for me to get used to the big stop and targets. I also want check my trade all the time ... I am working on it.

I analyzed a lot of other time frames with fractals but did not get comfortable with any of them. I did notice it can work on the 15 minutes and 30 minute but you end up not using a lot of candles due to news events.

Do you trade the same way on the 4hr, with stops above or below fractals and trading fractal breakouts and reversals? I've been trading fractals breakouts and reversals on the 4hr for the past 3 weeks but only going for 30 pips. This week was no good but the 2 other weeks were both positive but always open to other people's ideas.

Thanks again for all your posts and answering all my questions, hope I'm not annoying you too much.

trublu

Not too much trouble at all...

I find on the upper time frames like the 4hr that I end up doing a lot less trend breakout trades and more "counter trend" or fractal bounce trades. I also tend to "jump the gun" a bit and enter before the fractal is fully formed.

When using the 4hr charts, one of the important things to recognize is that your charts can be different from other traders because charts are can based on many different things such as server time, local time ... This means the open and close of the 4 hour candle (or bar) can be different prices as well as different times.

Now, onto your questions.

Yes I place my stops on the other side of the fractal.
My profit targets really depend on what price action has been. For example if there have been no fractal break out signals in a while (that can mean price is ranging) then smaller targets are necessary. If price is trending and your signal enters you in the same direction of the trend then larger targets are called for. But if you are fading a move (trading against the trend) use smaller targets.

As for what those exits are ...

I love fibs. I love price areas where fractals have been made before (support and resistance areas), I also use a 50 sma ( the slope of the 50 sma as well as where price is in relation to the 50 sma - above or below). I sometimes even use the 10 sma as a target area (when fading a move).

Now there are a couple of "Gimmicks" that I use ( on the Eur/Usd) as well.

On Fractal Break out trades(using closed candles) - price usually moves 100% of the last move. That means if there are 100 pips between the last two fractals and price breaks one of those fractals, then price will continue for at least 100 pips past that broken fractal. i.e.(if you use 5pm est as the beginning of the day) look at july 14th Eur/USD. at 1 am est the high fractal (1.4014) and at 1pm is a low fractal (1.3911) with a hundred or so pips between them. So when price closes above the upper fractal during the 1 ma candle of july 15th 2009 price should go 100 pips higher than the upper fractal to 1.4114. So the trade I took was enter long @1.4046 with target of 1.4116 and stop of 1.3900
(see attached chart)

On a Fractal Bounce Trade, I usually use exit targets near previous fractals, but one Gimmick I tend to use for quick profits is to enter on open of the last candle of the fractals formation. ( i know it is not really a fractal at this point ... lol) and exit the trade at the close of the candle with stops on the other side of the fractal. Quick and easy... If the entry candle is not in profit and my exit has not been triggered I will usually let the trade run changing my exit to a break even trade or a 1:.5 risk:reward ratio trade ( if stop is at 50 pips from entry then target exit at 25 pips away from entry). It depends on how price is moving. The risk reward ratio ends up a little weird but they have a huge success rate.

I have also attached a second chart showing a Fractal Bounce Trade from July 16th - 17th. I entered short on the open of the candle (indicated by a down arrow) @1.4116 with a stop @ 1.4186(above the last fractal) and a target of 1.4068 (A few fractals have been in this area in the past - see the pink line, the last move was 100 pips or so and this is a counter trend trade so take a bit less than 100 pips) when I entered this trade I was planning on exiting using my "Gimmck" rule (see above) but changed it because I re analyzed the trade. this can be difficult to do since your emotions can get all in a bunch and color your thinking when you are in a trade.

If you look a bit earlier to the previous "fractal bounce" you would see that are not enough pips between the close of the entry candle( the 4rth candle in fractal formation) and the 1.4065 price area to justify entering the trade (with a 70 pip stop and only less that 10 pip target)

Oops, just noticed the length of this post ...

Hey Ellis thanks for the detailed post. Very informative and definitely not too long. I've thought about entering the reversal trades early on the open of the last bar but I haven't tested it yet, seems like sometimes you can get burned but other times you can get into a trend earlier. Thanks again for the post, looks like I got some more stuff to look over haha.

trublu

hi Trublu,

I just test your fractal and it is good and very clear for me to take decision on which area I should enter the trade... however ... what is your exit strategy ?
sometimes they just break the fractal and comes back to the box again ....


should I use the opposite fractal as my exit strategy ?

Hi night, I haven't looked at fractal breakouts for a long time. But what I was doing was testing either the opposite fractal as a stop loss, bad RR so I stopped doing that, or just choosing a static number as a take profit and stop loss level. I did some testing last year and had decent results using 30 pips for TP and SL on 4hr charts. That being said I didn't test enough data to know how good it really is. The main reason I stopped looking at fractal breakouts was because I couldn't be around the charts every 4 hours to see if there were any new trades. I plan to get back to trading with fractals in the near future. I need to do more testing when I have more time. Any more questions just ask, if I get around to doing more testing or coming up with any new ideas I"ll post them in the thread. Also I think it was Dopey who had some good charts on measured moves as your TP and SL, it's in the thread somewhere.

trublu

I started to follow your method and It has been working well. I just have a question for you (out of curiosity) if you are not doing fractals what are you doing now? Thanks.

Hi Costa good to know the method has been working for ya. I haven't been doing as much trading as I used to, something I need to change, like right now. Now a days I'm looking over a couple of things, mainly some 5 min stuff, Vantage's HL/HH thread and Phil Nell's 5 Min system, I also read Jankone's thread about Ryanmcd's method as well as Mike W's journal because he does 5 min trading and is a great trader. I'm going to do a follow up post on some longer term fractal trading I plan on doing.

If you don't mind me asking how are you using this system? On the shorter time frames how I started out with or the larger time frames I mentioned later on in the thread? Also any other useful info about how you've been trading would be helpful. Thanks for the post and feel free to stick around as I hope to get this thread up and going again.

trublu

So here is my plan on getting back to trading my beloved fractal breakouts and maybe some fractal reversals as well. For the next little while I want to demo trade fractal breakouts on the daily charts and using measured moves for TP and SL like Dopey suggested earlier in the thread.

I've come up with 4 different SL ideas last night that I plan to use. The first is the other half of the daily fractal channel and moving SL to BE when up 1%, moving to 1% when up 2% and so on. The other plans are variations of this and all involve trailing stop losses at the next level or % gain.

The 2nd plan is to use the 50% fib level of the daily fractal channel. I will then draw another fib from the 50% level to the breakout level to chart new target levels. I forget who but someone mentioned this is how another thread was trading fractals, forget who mentioned it but thanks for the info. I'm at work for another couple of hours but when I get home I'll post up some charts for all 4 ideas.

The 3rd idea is pretty much how Dopey first said it only I"ll drop down to the 4hr and put my SL at the last formed fractal on the 4hr chart before price broke out of the daily fractal channel.

The 4hr idea is tunneling down one more timeframe and using the 1 hour chart to set the SL at the last formed fractal but still using the daily fractal channel as oppossed to the 4h as Dopey first suggested. This will mean smaller stops which means more stop out and breakevens but also better chances of a runner since price doesn't have to move that far to gain multiple %'s.

Let me know if this makes sense or if there are any questions about anything I just said, I typed it all in one chance without proofreading at all so I apologize if there are errors or if it's hard to understand.

trublu

This is just an idea, perhaps more efficient than normal graphics work.
This does not depend on TF, but pips market movement, it is Renko bars here in FF, several issues in this regard.
Here is a look of the idea.

Interesting looking chart, I've done some work with Renko but not much. I'll add that to the list of things I should try, working on getting some charts of my SL ideas now.

trublu

Ok here are some quick charts showing my SL ideas.

The first one is the standard SL idea of using the opposite fractal channel as your SL and moving your TP to BE when you are up 1%.

The second chart is where you would place your SL at the 50% fib line. The blue line is the 50% fib line from chart one, the fib lines on this chart show how price doesn't have to move as far to hit +1%.

The third chart is showing the 4hr chart where I've moved the top of the fib down to the last formed fractal before the breakout occurred.

The last chart is the 1hr chart. In this case it is exactly the same levels as the 4hr chart as there was no other fractal before the breakout short occurred. Hopefully these help show what I meant when I talked about my SL ideas. Starting Monday I"ll put up some more charts of trades I'm actually in or would have been in if I miss the entry. I have to work until 7pm my time and I think my charts close at 5pm my time so if the fractal is broken in the first 2 and a half hours or so I might miss the entry and will watch how the trade does.

As always if anyone has any comments or questions feel free to post them.

Forgot to mention as can be seen by the charts the 4hr and 1hr trading way would have your SL at BE and the first two charts you'd still have your SL at the original position. This is a short trade by the way if you weren't sure.
trublu

I set up some pending orders last night and so far nothing has been entered. It takes a lot more time than I thought to set up all pending orders with all the 4 SL ideas set up. Now the hard part is moving your SL to the last 1hr or 4hr fractal channel high/low since once the trade triggers there can be a lot of new channel high/lows to move the stop, mostly on the 1hr. That means I'll miss some times where you can move your SL, since I"ll be sleeping or at work. It'll be interesting to see how these trades play out with the different SL ideas.

trublu

I have entered into a GBPUSD short trade and set up my SL positions on the 4hr and 1 hour charts. I'm going to bed so I won't be able to move them until the morning, if the trade is still open. I'd say it's a pretty risky trade since the trend is UP, but I haven't done any back testing on only trading with the trend or not so I figure I'll take all trades that show up for now until I've done more testing.

As you can see in the chart below I've put all the different SL ideas into play. The top red dashed line showing my SL is actually 2 lines, the 4hr and the daily. I haven't used the fractal to the right of that one (the fractal furthest to the right) because 2 bars haven't closed after it which means it is not a real fractal yet.

trublu

I've entered E/U and U/CHF trades, EU is a short trade and the CHF is a long trade. I've moved the SL on the 1hr chart for the CHF trade to break even since 1% gain was hit after I moved the SL to the most recent fractal on the 1hr chart. The same goes for the 1hr on the GU short, so that means those 2 will be break even at worst, I haven't moved any stops for any other SL ideas yet.

I'm debating whether or not to set pending orders before I go to work. There is still 5 hours until my daily bars close but price could move fast and trigger a pending order that wasn't actually a confirmed fractal. I think I'll wait until after I get home from work even though that means the new bar will have been open for 3 hours without me being able to place any trades. For testing purposes I'll track any trades that I miss but would be correct entries, at least for now until I do further testing.

trublu

Ok so what happened is I accidentally entered all trades with a full lot and my demo account only has $5000 in it so I think I got margin called, but it shows all trades closed with a profit. Not really sure what happened, regardless I've set up all trades with a much smaller lot size so it doesn't happen again.

Had the trades not closed, the EU 1hr and 50% would have been stopped out and the 4hr and daily would have still been going.

The GU would be BE on the 1hr, 50% loss and 4hr and daily would still be going.

The U/CHF would be BE on the 1hr and the rest would be open.

As of right now I have plenty of pending orders and am in EJ short.

trublu