The binary options broker Pocket Option offers a modern and feature-rich trading platform with a wide range of professional tools. Among them, indicators hold a special place — many of which have already been covered on our site. Today, however, we are focusing not just on another technical analysis tool, but on a complete trading system built into a single, straightforward indicator.
Anyone familiar with the work of Bill Williams will recognise his celebrated Profitunity system, described in the bestseller "Trading Chaos". It was this book that introduced the Alligator indicator and fractals to traders worldwide. In this review, we show how self-similarity structures can be applied in a new way to create a genuinely effective tool for capturing profits in the binary options market.
Content:
- Key Features
- Installation and Settings
- Strategy Overview
- Fractal Chaos Bands Trading Rules
- Specifics of Application
- Conclusion
Key Features of the Fractal Chaos Bands Indicator
- 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: 08:00–21:00 UTC
Installing and Configuring the Fractal Chaos Bands Strategy
The Fractal Chaos Bands strategy indicators are added to the Pocket Option platform using the standard procedure. Open the indicator panel by clicking the sliders icon, then select "Fractal Chaos Bands" and "Moving Average" from the list of available indicators.
Next, set the calculation period for each indicator: Fractal Chaos Bands (2) and EMA(14). To do this, click the pencil icon and enter the required parameters.
After that, set the chart timeframe to M1 by clicking the candlestick chart icon and selecting the appropriate period. Also remember to enable the timer ("Enable Timer") — a useful function that shows how many seconds remain until the current candle closes.
The choice of asset is down to personal preference. All examples in this review are shown on a one-minute chart of American Express shares. For those who are not yet familiar with fractals, we recommend reading "Strategy for using fractals in binary options", which covers both their structure and the rules for applying them in trading.
Fractal Chaos Bands Strategy Overview
The Fractal Chaos Bands strategy generates signals for opening positions based on an indicator developed by Australian trader Edward William Dreiss. It is rooted in fractal market theory, which holds that future price behaviour is largely determined by past price changes.
The core idea is this: if price "breaks through" a fractal — defined as a five-candle pattern with the lowest low or highest high in the middle — there is a high probability that price will continue moving in the direction of the breakout. Crucially, "breakout" here means a candle closing beyond the fractal level, not merely reaching it.
To make it easier to navigate the many fractals that form during any price movement, the Fractal Chaos Bands indicator draws an upper line at the high of the most recently completed five-candle fractal, and a lower line at its low.
The indicator's primary function is to filter out market "noise" from minor price fluctuations and plot clear levels that make price movement easier to read.
As shown above, when a candle closes beyond the upper line, price typically continues in the same direction. The same applies to a downtrend: when a candle closes beyond the lower line, prices tend to move further down. When price is contained between the two lines, the market is consolidating.
False breakouts do occur, of course. However, trend continuation after a breakout is the more common outcome — and, as we will explain below, false breakouts can actually be used to your advantage.
Fractal Chaos Bands Trading Rules
The Fractal Chaos Bands strategy is built around one technical analysis tool, and mastering all its applications requires more than the indicator alone. For those who want a thorough grounding in technical analysis and its practical use in trading, we recommend the following articles:
- Technical Analysis of Binary Options
- Technical Analysis of Cryptocurrencies
- Autochartist: Technical Analysis on Automation
- J. Murphy's "Intermarket Technical Analysis"
At this point in most of our strategy reviews, we would suggest a filter to reduce losing trades. Here we take a different approach: instead of a filter designed to reduce losses, we add a simple indicator — an exponential moving average — to increase the number of potentially profitable trades.
The strategy is therefore presented in two versions: a core version and an advanced version.
Fractal Chaos Bands Core Strategy
The core version is based on breakout trades: when a candle closes above the upper band of the Fractal Chaos Bands indicator, buy a Call option; when a candle closes below the lower band, buy a Put option.
On the M1 chart, the recommended expiration is 3 minutes.
Fractal Chaos Bands Advanced Strategy
The advanced version adds an EMA(14) to the chart. In addition to the breakout signals from the core version, this version also generates entries on a bounce from the moving average following a false breakout of either indicator line.
As shown above, buying Call options on the candle following each bounce from the moving average would have been profitable in both cases. As a reminder, all trades use a 3-minute expiration — equivalent to 3 candles on M1.
EMA(14) also acts as an additional entry filter: buy a Call option on an upper band breakout only when the signal candle closes above the moving average; buy a Put option only when the signal candle closes below the moving average.
As the example above shows, this simple rule helped avoid losses in two cases. The full rules for opening Call and Put options under the advanced strategy with the trend filter are set out below.
Opening a Call Option
- The candle closes above the upper band of the Fractal Chaos Bands and above EMA(14).
- Buy a Call option at the open of the next candle.
Opening a Put Option
- The candle closes below the lower band of the Fractal Chaos Bands and below EMA(14).
- Buy a Put option at the open of the next candle.
The recommended expiration time is 3 candles. Adjust the holding period based on the instrument and backtesting results.
Specifics of Using the Fractal Chaos Bands Strategy
As you may have noticed, the Fractal Chaos Bands strategy filters consolidating markets reasonably well. However, for some assets the indicator alone may not be sufficient. To further reduce false signals, we recommend trading in the direction of the trend on a higher timeframe (M30 or H1), and using one of the trend indicators covered in the following reviews:
- Best Trend Indicators
- PZ Trend Trading Indicator
- Trend Lines Indicator for MT4
- TJ10X Forex Indicator
- Fxaccurate Larna MT4 Indicator
Pros of the Fractal Chaos Bands Strategy
The primary strength of this system is the quality of its signals — they allow the trader to enter at the very beginning of an emerging trend impulse. Forex traders can use it to establish a position at the start of a new trend, while binary options traders will value the high probability of options closing in profit. Both groups will appreciate the accuracy of the Fractal Chaos Bands indicator.
Cons of the Fractal Chaos Bands Strategy
The main drawback is the appearance of false signals during prolonged consolidation. This is a known issue with trend-following strategies in general. To minimise false breakouts, we recommend two practical measures: trade during active market hours, and apply the trend filters discussed in this review.
Conclusion
The Fractal Chaos Bands strategy for Pocket Option can become a reliable tool for binary options trading. It makes it straightforward to identify both a promising trade direction and the right moment to buy an option. The EMA(14) filter in the advanced version adds entries from bounce trades along the trend, complementing the core breakout signals. Judicious use of the Martingale approach can further improve the overall win rate.
Before using the Fractal Chaos Bands strategy on a live account with Pocket Option, we recommend practising on a demo account and studying capital management principles. Good luck with your trading!
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