Fractal-Based Trailing Stop

Note: A fractal-based trailing stop is best employed in a trend-following system. Since fractals are included in the definition of a trend, we can use them to design trading strategies, either as an entry trigger or a trailing stop.  (Here we look at the use of fractals for a trailing stop)
This is a great way to include a trailing stop into your strategy while considering the natural ebb and flow (noise) of the market, and give it room to breathe.   The strategy should identify the direction of the trend, make an entry based on some entry criteria, place an initial stoploss,   and then we can use this trailing stop to let our winner run!  The goal is to get into a risk free trade and lock in as much profit as possible while not getting stopped out.
Category: Trend-Following Strategies
Type:  100% Systematic (See Designing A Fractal-Based Trailing Stop EA – Mark Thomas )

Bill Williams defines a fractal as a specific sequence of 5 bars:  

1. Bearish Fractals: 5 bars (or candles), center bar is the highest with two lower highs on each side.  This indicates a high probability of a bearish movement.   
2. Bullish Fractals: 5 bars (or candles), center bar being the lowest two higher highs on each side.  This indicates a high probability of a bullish movement.

 Also,

 Fractals may be included in the definition of a trend:

1. A Bearish Trend is made up of lower highs and lower lows, aka lower bearish fractals and lower bullish fractals.
2. A Bullish Trend is made up of higher highs and higher lows, aka higher bearish fractals and higher bullish fractals.

Variations:

1. Tight Fractal-Based Trailing Stop – place trailing stop behind the last fractal.
2. Loose Fractal-Based Trailing Stop – place trailing stop behind the second to last fractal.