Bill Williams is one of the most famous traders in the world, and he was in fact a pioneer in the field of modern trading. He founded the world’s first school to specifically teach trading on the market. To ordinary traders, he is better known as the developer of a number of popular indicators. The most popular ones are the “Alligator” and “Fractals.” In this article, we will review an effective trading strategy based on fractals and the RSI (Relative Strength Index).


Briefly about indicators

Bill Williams’ fractals have little to do with fractal mathematical theory. They are in essence local highs and lows (extremes). They are formed through automatic candle analysis. The algorithm recognizes characteristic candle combinations.

The RSI is one of the most popular indicators of the oscillator class. It consists of one line, the value of which is calculated by a sufficiently complex formula for averaging the price values for a certain past period on the chart. In this strategy, the Relative Strength Index acts as a filter. A fairly large number of fractals appear regularly on the chart, but the oscillator will help us to select the really effective signals.

Configuring the trading terminal

The strategy is not tied to specific assets, so you can choose any currency pair, except for pairs with BTC and LTC, because they have a very low profit percentage and a chart that is not suitable for technical analysis.


How to set up the platform:

asset: any currency pair, CRYPTO IDX, or shares and raw materials;
time frame: from 15 seconds to 5 minutes, ideally 1 minute;
expiration: depends on the time frame, it should equal 2–5 candles;
investment: according to the principles of money management — 1–5 % оf the account or less;
indicators: the Alligator with a display function for fractals and RSI.

The relative strength index should be configured so that its period is equal to 8, and the OverBought/OverSold zones are at the 50 mark. In order to improve the visual perception, it is recommended to color the overbought area green, and to make the oversold one red. An example of a properly configured RSI indicator is shown in the picture below.

Bill Williams’ fractals


Signal for options “Up”

Trading on an increase can occur when two requirements are met. First, there must be a descending fractal in the form of a downwardly directed triangle. It is located under a Japanese candle. Secondly, the oscillator must cross level 50 and enter the overbought zone.

the oscillator must cross level 50 and enter the overbought zone


The extremum consists of 5 candles, so in real time there is a delay of two price elements before it appears on the chart. In most cases, a fractal appears first, followed by confirmation from the RSI. Entry on the market should be carried out immediately after the closure of the signal candle, on which there was either an intersection of the borders of the zones on the relative strength index, or the appearance of a fractal if the RSI was already in the right state.

Signal for options “Down”

There is nothing else that needs to be described here. The signal is similar to the first but in the reverse – an upward fractal and a transition of the RSI to the oversold area are of interest. For clarity, this moment is shown in the picture below. At the same time, entry on the market was made 3 candles after the formation of the extremum, because the confirmation from the filter was not received immediately.

The extremum consists of 5 candles, so in real time there is a delay of two price elements before it appears on the chart


An example of trading on a fractal reversal

The real effectiveness of strategies is always tested in practice, which we have done. Specifically for this article we opened a trade on the Binomo trading platform. As our asset, we used the crypto index, because excellent price formations without omissions or delays are formed on the 30-second chart. The rates of other assets are not updated often.

An example of trading on a fractal reversal


So, a signal was received on the chart almost simultaneously to purchase an “Up” option – it was both the intersection of the RSI with the middle level and the appearance of a downward-directed extremum. Therefore, we opened a trade on an increase. The expiration time was 2 minutes, which on our timeframe equals 4 candles.
A strong trend was not observed; however, in order to profit from trading options contracts, a minimum deviation in the forecasted direction is allowable. So we got our $8 net profit on a $10 investment. There was a signal on the market for the purchase of an option "Down," when the RSI again returned to the oversold zone, and above the candle there was an upward fractal.

A strong trend was not observed; however, in order to profit from trading options contracts, a minimum deviation in the forecasted direction is allowable. So we got our $8 net profit on a $10 investment. There was a signal on the market for the purchase of an option “Down,” when the RSI again returned to the oversold zone, and above the candle there was an upward fractal.

OPEN DEMO ACCOUNT

“General Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.”

Trading strategy on a fractal reversal with the RSI filter
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