The price movements in the market seem quite chaotic at the first sight. But when you look closer, you will be able to notice they form some repeatable patterns that can be identified and used in trading. This is the base for the indicators which are filtering the noises and demonstrate a clearer situation in the market. Today, I am going to present to you an indicator known as the Fractal Chaos Bands.
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Fractal Chaos Bands on the Binomo platform
Fractal geometry can be used in price movements measurements. It can help to spot recurring patterns in the overall chaos. The Fractal Chaos Bands indicator was designed by Edward William Dreiss, a famous commodity trader and advisor from Australia. His tool draws bands around the price which help to identify whether there is currently a trend in the market.
Adding the Fractal Chaos Bands to the chart
In order to use the Fractal Chaos Bands, you must first log in to your Binomo account. Then, choose the financial instrument and chart timeframe. Then, click on the indicators icon and find the Fractal Chaos Bands on the list. It comes with default settings that you can modify according to your needs.
Trading with the use of the Fractal Chaos Bands
Once the indicator is attached to your chart, you may start to look for the trading signals. The bands remain flat during a non-trending phase of the market. When the market is trending the bands has some inclination towards the trend. The steeper the slope, the more stable the trend.
There are two bands of the Fractal Chaos Bands indicator. The upper line indicates high values and the lower line shows low values. A minimum of 5 candle bars composes this indicator with the highest high or the lowest low in the middle. If just one candle to the right appears, a fractal is unconfirmed and may disappear from the price chart. Two candles to the right confirm the fractal.
Going long with the Fractal Chaos Bands
To open a long position with the Fractal Chaos Bands you must wait for the situation where the candle crosses above the upper band. When it closes above it, you may enter the trade.
Going short with the Fractal Chaos Bands
If you want to open a short position, you should wait for the price to close below the lower line of the Fractal Chaos Bands indicator.
Extra filter
Indicators sometimes produce false signals. You can, however, protect against false signals and whipsaws by adding an extra filter to the chart. It could be the Simple Moving Average with a period of 200.
With the SMA200 attached, you will be looking for buy opportunities when the price moves above the SMA200 and sell signals when the price is below the SMA line.
Summary
Edward William Dreiss introduced an indicator that is based on fractal geometry. The Fractal Chaos Bands helps to identify the trend by drawing the lines on the chart. When the bands are flat, the market is ranging. When the bands form a slope, the market is trending.
Trading signals are received when the price breaks through the lower or upper band of the indicator. It might be wise to use an additional indicator to confirm the breakouts.
Remember that there is a free demo account available on the Binomo platform. Use it as a training field and move to the live account when you get hold of trading with the Fractal Chaos Bands indicator.
Best of luck!