Bill Williams Trading System
Trading System by Bill Williams Trading System Chaos 2.
The book "Trading Chaos 2" is the third book, written by Dr. Bill Williams of the market chaos, and on what strategy to use to maximize profits and minimize losses.
In the first two books described the strategy trend (trend-tracking system), in his book "Trading Chaos 2" Williams said that the markets have become more mobile and therefore have to act more aggressively. That is, to enter the market at the first sign of reversal. In this case the initial stop los should be minimal.
Bill Williams Trading System Three wise men.
Bill Williams Trading System is based on three signals for entry into the market. For convenience, Williams called them "three wise men." Purpose of the first wise man - the maximum early to enter the market with minimum stop band is. Purpose of the second wise man - is added to the first position, when the momentum changed direction and went in the right direction. Purpose of the third sage - periodically add positions until the market moves in the right direction.
Bill Williams Trading System The first wise man.
Sage signal first appears when the price is quite far from the Alligator and has angulation. Angulation - the angle of deviation between the two lines, the first - a line drawn around the middle of the price bars (last five bars). The second - a line drawn along the blue line Alligator. Angulation often occurs when the alligator is still asleep (all three lines are intertwined Alligator), and the price has gone up considerably (or down).
Thus, we see angulation and are now waiting for the signal bar. In this case we can only sell if the price is above the Alligator and buy, if lower. The signal must be a bar reversal and resemble the letter T in a bear market and an inverted T with a bull (see illustration).
To enter the market should be slightly below the low bar (3-5 points). Stop los set slightly above the maximum. Since the levels are known in advance, they usually use the pending orders.
Also, be aware that entry into the market on sage first signal is always an input against the trend. At the entrance down, AO indicator must be green. At the entrance up indicator AO should be red.
Bill Williams Trading System The second wise man.
Second signal sage appears when the indicator AO had one color (green) and replaced it on the opposite (red). After that, you have to wait another 3 bars and when all three bars were red, then set aside an order to sell. In this case the stop is set for the latest Los fractal or for a maximum of the last 3-5 bars.
I will make a slight digression. The fact that these data were valid in 2005 for the stock and futures of the American market. If you talk about forex trading, then this signal could be wise simply unprofitable. The meaning of this signal is that we need to be added when the market changed the momentum (changed the direction of the driving force) and is now likely to move in the right direction.
In general, the indicator measures the momentum of the AO last 5 bars (simple moving average with parameter 5, built on the middle points of the bars) and compares it with the momentum of the last 34 bars.
Bill Williams Trading System The third sage.
Third signal sage appears when the fractal is formed on the sale. To use this signal, we must place a pending order on the breakdown of the fractal.
I recall that the fractal consists of 5 bars, with an average bar must be the highest (fractal buy) or lowest (fractal for sale). In this case, fractal buy is always above the red line an alligator, and the fractal for sale is always lower.
Bill Williams Trading System When the three wise men come together.
A common scenario of entering the market is as follows. Signal appears first sage, which aims to enter the market as early as possible and minimize losses. Once we entered the market, it is necessary to find the best point to add. Bill Williams recommends to wait until the indicator changes color and AO produced 3 bars of different color (a green and there was 3 red). After the second entrance waiting until the initial fractal for sale and entering the breakdown of the fractal. If there is another fractal, then enter again. That is, the third and subsequent inputs are inputs to the breakdown of the fractal.
At the same time stop los set either for the last fractal to buy (if selling) or above the high of the last 3-5 bars.
Bill Williams Trading System Contact pyramid (money management tactics.)
Bill Williams says that the tactic of "reverse pyramid" is the best for the stock and futures markets. The meaning of the following tactics. Venture capital (eg, 10% of the deposit) divided by 15 parts. The first input (reversal bar, the signal first sage) holds a contract. The second input (as we have seen that momentum going in our direction) is performed by 5 contracts. The third entry (fractal break) holds four contracts. The fourth entry by 3 and the fifth by 2 contracts (2 more fractal breakout). That is, enter the following: 1 contract to test the market goes in our favor or not, and then when people were convinced that going, then added - 5,4,3,2. That is, minus one contract for each additional alarm.
Bill Williams Trading System How to use this system to the Forex market.
We all know that markets change over time and the strategy worked before might not work today. And since this tactic has been the best at the 2005 U.S. stock market, this strategy should definitely check again. First, it is no longer 2005, and secondly, trading in the stock market still is different from trading in the Forex market in the first place this second difference relates to the signal of a sage.
In my opinion, the main thing to understand the very meaning of the signal, and not dully to follow him. In fact in any book describes in the first place the idea of trade, not the trading system as it is. For example, in the first book Trading Chaos, which was written in 1995, there are also a lot of good ideas, although the system itself, as it is described in the book, long out of date.
So, before you use signals in practice, it is necessary to test the system in history (the last 2-3 years) for those currency pairs that will be used for trading. Draw the necessary conclusions and may again test the system with some modifications. By the way, Bill Williams recommends the use of their system is on the daily charts. But in practice, it can be adapted for the H4 and schedules for weekly schedules.
After tests on the history and forward to do the test, that is to trade on a demo account (or micro-real) for 1-3 months in the same currency pairs that have been previously selected for the trade.
Alligator, Fractals, Awesome Oscillator (AO), Acceleration Oscillator (AC)
When (Alligator) lines are opening we put a buy stop one point above the most recent fractal outside of the lines in trend direction
When (Alligator) lines are closing we are closing too.
we stay out of the market when and while lines are intertwining.
After the first fractal is taken, we take any and every signal in that direction.
Adding Entry Signals:
we go long when AO cross zero line from negative to positive values and short on the opposite scenario. we go long we have 3 consecutive AO bars above zero line last two having higher highs
- opposite for sell
Go long after two consecutive bars above zero line, Go long after three consecutive bars below zero line -
for short - reverse scenario
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