Fractal Moxo strategy is based on fractals and a technical momentum indicator. Fractals are recurring patterns that can predict reversals among larger, more chaotic price movements. The basic fractals are composed of five or more bars. There are rules to identify the fractals. Following are the rules generally accepted by the traders all over the world to identify the fractals.
- A bearish reversal occurs when there is a pattern with the highest high in the middle and two other lower highs on each side.
- A bullish reversal occurs when there is a pattern with the lowest low in the middle and two higher lows on each side.
The above figure shows the fractals. Those caps are the fractals indicated by the fractal indicator. Notice how the price reversed from those fractal points. One of the major disadvantages of fractals is that fractals are lagging indicators; a fractal cannot be observed until we are two bars in to the reversal. However, most significant reversals last many more bars so you can still grab nice profits using the fractals. Fractals are considered to be extremely powerful tools when used in conjunction with other indicators and techniques, especially when used to confirm reversals. In general, fractals make excellent decision support tools for any trading method.
Fractal Moxo Momentum.
Momentum traders focus on the currency pairs that are moving significantly in one direction on high volume. Normally momentum traders hold their positions for a few minutes, hours or even the entire day or even for the numbers of days depending on how quickly the price moves and when it changes the direction. Although it is a great way of trading the markets there are several draw backs of the momentum trading. They are:
- Momentum traders are likely to jump in to the position too soon, before the momentum is confirmed.
- These types of traders are also likely to close the position too late, after the saturation has been reached.
- They often fail to keep eyes on the screen, missing the changing trends, reversals or signs of news that take the market by surprise.
- Such traders are also likely to fail to act quickly to close a bad position, therefore riding the momentum in the opposite direction which will hurt the entire equity of the trader.
Although these are the some of the pitfalls of the momentum trading, this method of trading offers the most potential for large profits, since it is the momentum that drives the market powerfully.
Time Frame and Currency Pair Compatibility for Fractal Moxo Trading Strategy
Time frame: All above 5 minutes
Currency Pairs: All
Buy Condition Using Fractal Moxo
- A sign of fractal (which looks like an inverted cap) should appear below the recent swing low.
- The Momentum indicator should be below the level of 100.
Sell Condition Using Fractal Moxo
- A sign of fractal (which looks like a cap) should appear above the recent swing high.
- The momentum indicator should be above the level of 100.
Stop loss and take profit
You should close your position as soon as another fractal appears on the chart. Your stop loss should be placed 10 pips below/above recent fractal bar. The amount of pips you risk per trade depends upon the time frame you use.