Forex Trading

The Chaos Theory of Bill Williams

In the dailyBTCUSDprice chart, you see the Alligator’s lines are moving randomly and then, they start moving in the same direction and separating at the same time. A pattern showing the lines going apart is referred to as the Hungry Alligator by Williams. Note that when the lines start separating, the first line to react to the positive new incoming information is the green line, next the red line reacts, and the blue one is the last to turn.

Now that the indicator is on the chart, it will tell you when a fractal has been formed. Contrary to what you may think at first, the idea isn’t to turn around and go with a fractal, rather, it is to go against it. If you think about it for a moment, forex covered call strategy it does make perfect sense. If a previous reversal area gets broken through, then, obviously, the market has shown some strength in one direction or the other. Click on Insert from the top ribbon of the platform and pull down the menu.

Differently put, any market is a tool that helps us set a reasonable price, that will balance the power of those who buy and those who sell. This is a signal that a potential trend is forming in the market. Williams himself referred to the Alligator indicator as the compass that helps a trader remain moving in the same direction. This indicator works mostly by helping to see the actual trends and avoid trading within a range, which according to Bill Williams, significantly minimize your losses. Trading indicators are helpful little helpers of any trader out there. Depending on your requirements, different indicators are capable of measuring and predicting trends, volatility, momentum and volume.

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In other words, there were a couple of reasons to think about selling at that point. As you can see, the market really broke down rather significantly afterwards. It features a couple of blue arrows, one of which is pointing at a fractal that has been printed on the chart, and the other blue arrow points at the candlestick that has broken above that fractal.

Trading Earnings Strategy (Backtest)

Notice during most of this up move, the prices stay above the Alligator’s lips . The prices cross the line for the first time when the bull trend is exhausting. Unlike the previous, Type One structure, a structure that aims at solving problems, a Type Two structure is geared for action that brings something new into the current situation. When you understand how any market works and its purposes you can refute some basic principles of fundamental analysis. Intended to supplement the Alligator indicator, the Gator indicator helps in confirming trends and warning of decreasing momentum in the market. The fractals indicator plots local highs and lows where the price may potentially stop and reverse, or even breakout.

bill williams trader

Remember, the oval zone marks the entry point according to the bullish divergent bar, the green and the red lines mark the entry level and the stop level accordingly. Based on the Awesome Oscillator , we add on after three consecutive green bars . The indicator looks like a histogram consisting of red and green bars.

Exiting According to Bill Williams Trading Indicators

Below you will find the idea behind the overall method as well as helpful tips on using each particular indicator in your trading process. For starters, online trading wasn’t even remotely a thing, back in the late twentieth century. Unlike today, only a select category of people were able to gain access to the market and profit off it. A bearish twin peak is when there are two peaks in momentum above the zero line. The second peak must be smaller than the first, and the red bar closer to the zero line. A bullish twin peak is when there are two peaks in momentum below the zero line.

  • Let study the ways to enter the market and protect your position on the example of the sameBTCUSDdaily chart.
  • Atrix trade system is a improved implementation of “Profitunity” trade system by Bill Williams based on TRIX algorithm.
  • The AO is displayed as a histogram at the bottom of the chart, with green and red bars.
  • Bill Williams prefers to use the median prices instead of the closing prices because it allows the trader to glean into the activity of the day.
  • It was originally designed as a volatility indicator able to capture gaps in…

While technically these are signals if they get broken below. Another common use for the Bill Williams Fractal indicator is to confirm trends. For example, if the market is in a strong uptrend, there will be more fractals that are broken to the upside than the downside.

The day is filled with news and events you need to know, and here’re some of them. This indicator gives a clear indication of price action swing-points as well as an indication of whether it is a higher, lower, or equal swing point relative to the last high/low. Hello ladies and gentlemen traders Continuing deeper and stronger with the screeners’ educational series one more time.

Trading with the Fractal Indicator

The easiest way to use the Bill Williams Fractal Indicator is with a moving average. This allows you to stay on the right side of the trend anyway, and as a result you can avoid getting into too much trouble. For example, if you get a fractal that forms in the other direction of the trend, you simply ignore it, at least until the moving averages tell you it’s time to go in that direction as well. The Bill Williams Fractal indicator will then be placed on the chart, showing fractals in whatever time frame you choose to trade. The default setting is a gray three-dimensional arrow, as you can see on the chart below. It features gray three-dimensional arrows that show when a fractal has been formed.

bill williams trader

A trend will be confirmed when the alligator’s teeth cut through the lips. This will be the signal to buy in a confirmed uptrend or to sell in a confirmed downtrend. The signal to book profits will come when the lines start to converge again, which will mean that the alligator is now about to repeat the sleep cycle.

Bill William is a technical / chartist expert who develops the concept of Chaos Theory and the special effects that occur in the market \ which are then known as non-linear dynamic theories. In accordance with this understanding, beaxy he became a Trend-Trader, although he also often sought the best entry point for counter-trends when a trend had gone too far. Williams says that it’s necessary to understand all dimensions of the market.

Bill M. Williams

After the founders passing in 2019, Profitunity is now led by his daughter, Justine Williams-Lara. Experienced traders look forward to the earnings season, as the increased volatility can present outsized opportunities for making good profits…. A bearish saucer can be identified when the awesome oscillator is below the zero line and there are two consecutive ascending histogram bars which are followed by a lower bar. A bullish saucer can be identified when the awesome oscillator is above the zero line and there are two or more consecutive declining histogram bars which are followed by a rising bar. The Fractals indicator shows well important levels on price charts, which the trader may use for trading breakouts or placing SLs.

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The Awesome Oscillator is simply a 34-period moving average subtracted from a 5-period moving average. Its awesomeness is that the moving averages are plotted using the median prices of candlesticks. The indicator falls in the broader category of momentum oscillators, which includes other indicators such as the RSI, Stochastics and MACD. Please read our separate dedicated guide on Awesome Oscillator trading strategies. It should be noted that the Bill Williams Fractal Indicator is part of a larger trading system that he built. He uses the Alligator Indicator that he also designed in order to trade this market.

Bill Williams, PhD, CTA , is President of, a leader in the field of education for traders and investors. Justine Gregory-Williams is President of the Profitunity Trading Group and a full-time trader. And then when the market facilitation index doesn’t agree with the volume it carries a whole new meaning. This way, when BW MFI is pointing upward by the volume is decreasing, it means that although the market is still moving in the same direction, there are no fresh participants to back it up.

So, it makes complete sense that although Williams’s ways of trading were very much effective, today they need to be looked at from a different approach. But before we go into the technicalities of implementing Bill Williams chaos trading indicators, let’s first take a look at the foundation of the theory. As an oscillator, it will fluctuate above and below the zero line which is considered neutral. To give you an idea of how this looks with the Alligator Indicator, take a look at the chart below and notice how the histogram spreads out further when the moving averages are spread out. It’s just a simplification of how to read what is essentially the same indicator. It’s an easier way to see the same information, therebymaking it very useful.

Bill Williams

Therefore, the Second Wise man is a signal validating the First one. Some traders use it to put the second entry, they add on to their position after the Second Wise Man signal is created. The long entry is placed above the top of the bullish divergent dowmarkets bar. Differently put, it shows where the market would be if there were no new incoming information. So, the distance between this line and the current price is an indication of how the traders interpret this new incoming information.

Bill Williams suggested that MFI is used together with Fractal. Smaller Fractals (+ Transparency) I find that fractals are super useful, but can visually clutter up the chart pretty quickly. Their opaqueness and just overall bigness can become a bit much. As such, these are just like regular fractals, only smaller (pine script’s`size.tiny` instead of the default `size.small`). This is a modified version of Fractals that I made and how to use it.

With the Alligator Indicator, the idea is that the three moving averages need to spread out in a direction at the same time to show momentum. This indicator, the Gator Oscillator, expands on that foundation. Below, you can see the options available in your Metatrader platform. The second important signal to enter the market is based on the Awesome Oscillator, you are already familiar with. Its work principle is similar to the famous MACD indicator.

Let us first study some theory and then move on to practical examples. Williams writes that most traders and investors think that the market is too complex, and so, they miss obvious things. The primary purpose of any market is to ration, existing and future supply to those who want it the most.

This means that the alligator is trending, meaning that it is eating. In this scenario, you should be trying everything you can to keep your position open in order to get as many prophets as possible. In other words, the moving averages on the Alligator Indicator would be spread wide open, and in a nice trending slope.

Remember, this oscillator essentially just measures the difference between the three moving averages that make up the Alligator Indicator. Sleeping phase – The sleeping phase is when both of the bars on each side of the zero line in the oscillator are red. This means that the alligator is sleeping, or in other words there is no trend. This would be the same as when using the Alligator Indicator, and the moving averages are all crossing each other and tightening up, showing a lack of any clear directionality.

The blue arrow will represent when you get a couple of green bars on both sides of the zero level, meaning that the alligator is eating, and therefore you should try to stay in the market. The orange arrow shows duel red bars, suggesting that you should stay out of the market because there is no trend and the alligator is sleeping. These are the three levels of smoothed moving averages that make up the indicator.

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