DEFINITION of 'Fractal'

A type of pattern used in technical analysis to predict a reversal in the current trend. A fractal pattern consists of five bars and is identified when the price meets the following characteristics:

1. A shift from a downtrend to an uptrend occurs when the lowest bar is located in the middle of the pattern and two bars with successively higher lows are positioned around it.

2. A shift from an uptrend to a downtrend occurs when the highest bar is located in the middle of the pattern and two bars with successively lower highs are positioned around it.

BREAKING DOWN 'Fractal'

Fractal signals are most useful when used in conjunction with other technical indicators, such as Fibonacci retracement or various moving averages. It should be noted that this is not a widely used indicator, so it may not be available for every type of charting application. But various third parties have developed various plug-ins which make using fractals possible.

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