The binary options broker Pocket Option has a modern and multifunctional trading platform with a large number of professional trading tools. Among them, a special place is occupied by indicators, many of which you have already become familiar with on the pages of our site. However, today we will talk not just about another technical analysis tool, but about a full-fledged trading system, implemented in the form of a simple indicator.
Those who are familiar with the work of Bill Williams will never forget his famous Profitunity system, described by him in the bestseller “Trading Chaos”. It was thanks to this book that the “Alligator” indicators and fractals appeared on the monitor screens of traders around the world. In this review, we will tell you how you can use self-similarity structures in trading in a new way, creating a real harvester for collecting profits in the binary options market.
Content:
- Characteristics;
- Installation and Settings;
- Strategy Overview;
- Fractal Chaos Bands Trading Rules;
- Specifics of Application;
- Conclusion.
Characteristics of the Fractal Chaos Bands Binary Options Strategy
- Terminal: Pocket Option
- Timeframe: M1
- Expiration: 3 candles
- Option Types: Call/Put
- Indicators: Fractal Chaos Bands, EMA(14)
- Trading instruments: currency pairs, commodities, cryptocurrencies, stocks
- Trading hours: 8:00 - 21:00 Moscow time
Installation and Settings of the Binary Options Strategy Fractal Chaos Bands
The Fractal Chaos Bands strategy indicators are installed in the Pocket Option broker web platform as standard. To do this, you need to open the indicator panel by clicking on the icon with the sliders, after which a panel with a list of available indicators will open. In this list, select “Fractal Chaos Bands” and “Moving Average”.
Then you should set the calculation period of each indicator: Fractal Chaos Bands (2) and EMA(14). To do this, click on the pencil icon and set our parameters.
After that, you should set the chart timeframe to M1. You can do this by clicking on the icon with the image of the candlestick chart and selecting the appropriate period. Do not forget to activate the timer (“Enable Timer”) – a very useful function that shows how much time is left until the current candle closes.
The choice of asset for trading depends on your preferences. In this review, all examples will be shown on a minute chart of shares of the American financial corporation “American Express”. For those who have not yet figured out what fractals are, we recommend that you read the article “Strategy for using fractals in binary options”, where we review in detail not only their structure, but also the rules for using them in trading.
Fractal Chaos Bands Binary Options Strategy Review
The Fractal Chaos Bands binary options strategy generates signals for opening positions based on an indicator developed by Australian trader Edward William Dreiss. It is based on the fractal theory of the market, which suggests that future price behavior largely depends on their past changes.
The essence of this theory is that if the price “breaks through” a fractal consisting of five candles with the lowest minimum or highest maximum in the middle, then there is a very high probability of the price movement continuing in the direction of the breakthrough. In this case, “breakthrough” is understood not just as an update of the minimum or maximum of the fractal, but as the closing of the candle beyond this level.
To make it easier to navigate the huge variety of fractals that accompany any price movement, the Fractal Chaos Bands indicator draws the upper line at the maximum level, and the lower line at the minimum of the last formed fractal of five candles.
The main task of this indicator is to filter out market “noise”, consisting of minor price fluctuations, and draw levels, facilitating the visual perception of price movement.
The picture above shows that after a candle closes behind the upper line of the indicator, as a rule, the price movement continues in the same direction. The same is true for a downward trend: after a candle closes behind the lower line, prices usually continue to move down. If quotes are squeezed between levels, the market is flat.
Of course, there are also false breakouts (how could we do without them?). However, the continuation of the price impulse after the breakout occurs much more often. Not to mention that these “false breakouts” can be used to your advantage. How? We will tell you further in this review.
Trading Rules for Fractal Chaos Bands
The Fractal Chaos Bands binary options trading strategy is based on the work of one of the technical analysis tools and, for full mastery of all its techniques, it alone is clearly not enough. For those who want to truly understand technical analysis and immerse themselves in all the intricacies of profitable trading based on it, we recommend studying a selection of articles specifically devoted to this topic:
- Technical Analysis of Binary Options
- Technical analysis of cryptocurrencies
- Autochartist: Technical Analysis on Automation
- Book by D. Murphy "Intermarket Technical Analysis"
At this point, we usually recommend various filters or a set of rules to improve the effectiveness of the strategies described. However, today we will do it differently - instead of a filter, we will add a simple indicator - an exponential moving average, but not to reduce losing trades (as any filter does), but on the contrary, to increase the number of potentially profitable trades.
So, we will look at two versions of this trading strategy: basic and advanced.
Fractal Chaos Bands Core Strategy
The main version of the strategy involves opening trades on the breakout of the Fractal Chaos Bands indicator lines: after the candle closes behind the upper line, we buy the Call option, after the candle closes behind the lower line, we buy the Put option.
For the M1 chart, the optimal expiration period is 3 minutes.
Fractal Chaos Bands Advanced Strategy
In the advanced version of the strategy, an additional indicator is added to the chart - an exponential moving average with a period of 14. And to the signals described in the basic version, trading signals are added for a rebound from the moving average after a false breakout of one of the indicator lines.
The picture above shows that if we opened Call options on the candles following those marked as a rebound from the average, we would have made a profit in both cases. As a reminder, all trades with a 3-minute expiration are 3 candles on M1.
In addition, EMA(14) acts as an additional filter for transactions: we buy the Call option when the upper line of the Fractal Chaos Bands indicator is broken only if the signal candle closes above the moving average, and we buy the Put option when the signal candle closes below the moving average.
The picture above shows that in two cases this simple rule of filtering trades helped us avoid losses. Below are the rules for opening Call and Put options according to the main strategy with an added trend filter.
Opening a Call Option
- The candle closed above the upper border of the Fractal Chaos Bands and EMA(14)
- At the opening of the next candle we buy Call
Opening a Put Option
- The candle closed below the lower border of the Fractal Chaos Bands and EMA(14)
- At the opening of the next candle we buy Put
It is recommended to select the expiration time of 3 candles. Select the holding period of positions depending on the financial instrument and the results of testing on historical data.
Specifics of Using the Fractal Chaos Bands Strategy
As you may have noticed, the Fractal Chaos Bands binary options strategy filters the market flat quite well. However, for some assets, the basic indicator alone will not be enough. In this case, to reduce the number of false signals, we recommend opening trades in the direction of the trend of higher timeframes (M30, H1), and also using one of the indicators described in these reviews:
- Best Trend Indicators
- PZ Trend Trading indicator
- Trend Lines Indicator for MT4
- Indicator TJ10X Forex Indicator
- Fxaccurate Larna MT4 indicator
Pros of the Fractal Chaos Bands Strategy
The main advantage of this trading system is, of course, its signals, thanks to which the trader gets the opportunity to open a promising deal at the very beginning of the emerging trend impulse. Forex traders, this system will help them take a profitable position at the very beginning of the trend, while binary options buyers will appreciate it for the opportunity to open an option with a high probability of closing in profit. Both of them will certainly appreciate the accuracy of the Fractal Chaos Bands indicator.
Cons of the Fractal Chaos Bands Strategy
The disadvantages of the trading strategy include the appearance of false signals in conditions of a prolonged flat. Considering that this trading strategy belongs to the trend category, it, like many other similar systems, has such a problem. To reduce the number of false breakouts, we recommend adhering to a universal rule: trade during active market hours, and also use trend filters, which we discussed in this review.
Conclusion
The Pocket Option strategy “Fractal Chaos Bands” can become a reliable assistant in binary options trading. With its help, it is quite easy to determine not only a promising direction of trading, but also the moment to buy options. An additional filter in the form of a moving average, combined with the rules of the advanced version, allows you to make a profit not only from breakout trades, but also from a rebound along the trend. Moderate use of the Martingale system will help to further increase the percentage of profitable trades of this strategy.
Before using the binary options strategy “Fractal Chaos Bands” with the broker Pocket Option on a real account, we recommend practicing on a demo, as well as studying the rules of capital management. We wish everyone a favorable trend!
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