Chaos Theory by Bill Williams
Overview
Bill Williams developed unique trading system concepts between combining trading psychology and Chaos Theory. Bill Williams argues that the benefits of trading and investing are determined by human psychology, and anyone can become a profitable trader if they understand what is happening on the markets movement.
Bill Williams said the fundamental or technical analysis can not guarantee consistent profit because they do not see the actual moments in the market. Trading is a game of psychology, how to realize the self and knowledge, so the best way to become successful is to find your own trading system style, and there are two significant aspects in forex trading system : self-knowledge and understanding of the market itself.
Here is chaos Bill Williams trading system,
Indicators Bill Williams:
• Fractal
• Awesome Oscillator
• Acceleration / Deceleration
• Zone (phase energy / force combination)
• Balance Line (strange attractors)
Remember, before fractal appear, all the rest signals indicator should be ignored. But after open position formed by fractal signal, the trader can add positions given by other Bill Williams signal indicators.
Alligator and Gator
The Alligator
Bill Williams describes the Alligator as a compass that can keep your trading is in the right direction and not out of trading range. Alligator is a combination of three balance lines:
The Alligator
Alligator's Jaw (the blue line) - 13-period moving average
Alligator's Teeth (the red line) - 8-period moving average
Alligator's Lips (the green line) - 5-period moving average
If the three lines are parallel, if the Alligator sleep the market was in the range-bound state. The longer he sleep the more hungry the Alligator become. When Alligator wake up, the Alligator will hunt the price as far as possible, If the Alligator sleep, try not to move first. When Alligator wake up, Alligator will open the mouth and start hunting. After he full, the Alligator will sleep again, so it's time to take profits.
If the Alligator sleep, the market is in an uptrend or downtrend
• if the price is above the Alligator's mouth then the price is an uptrend
• if the price is below the Alligator's mouth then the price is a downtrend
The formula for the Alligator:
Midpoint PRICE = (HIGH + LOW) / 2
Alligator's JAW = SMMA (midpoint PRICE, 13, 8)
Alligator's Teeth = SMMA (midpoint PRICE, 8, 5)
Alligator'S LIPS = SMMA (midpoint PRICE, 5, 3)
Where:
• HIGH - the highest bar price;
• LOW - the lowest bar price;
• SMMA (A, B, C) - smoothed moving average (A - smoothed data, B - smoothing period, C - move into the future),
• Alligator'S JAW - blue line;
• Alligator's Teeth - red line;
• Alligator'S LIPS - green line.
The Gator Oscillator
Gator Oscillator shows the degree of convergence / divergence of the Balance Lines:
Gator Oscillator displayed two histograms
• The histogram is above the 0 line shows the distance between the blue lines with red lines (between the Alligator's jaw with teeth)
• The histogram is below the 0 line shows the distance between the red lines with green lines (between the Alligator's teeth with lips)
Green and red Histogram
• The red histogram bar means the current bar is lower than the previous bar
• The green histogram bar means bar the current bar is higher than the previous bar
Fractals
Bill Williams said it better do not trade before the first fractal is formed.
A buy fractal is a series of five consecutive bars where the highest point preceded by 2 lower high and followed by 2 lower high. A sell fractal is a series of five consecutive bars where the lowest point preceded by 2 higher low and followed by 2 higher low
Fractal signals:
• If a buy fractal is above the Alligator's Teeth (red line) BUY STOP one point above HIGH of fractal candle
• If a sell fractal is below the Alligator's Teeth (red line) SELL STOP one point below the LOW of fractal candle
Awesome Oscillator (AO)
Awesome Oscillator (AO) Overview
Awesome Oscillator (AO) describe the momentum of the last 5 bars compared with the momentum of the last 34 bars.
Awesome Oscillator (AO) is difference between 34 and 5 period SMA of the bar's midpoints (H + L) / 2. Awesome Oscillator (AO) is plotted on the chart as a histogram.
The Awesome Oscillator buy signal
Awesome Oscillator Buy Signal formed when the histogram is above the zero line, changes direction from down to up.
When the signal has been formed, place a BUY STOP above the highest price point.
Make sure that we only BUY if only the current histogram is green and SELL if red histogram.
Awesome Oscillator Saucer sell signal
Sell signal Awesome Oscillator appears when the histogram is below the 0 and changes its direction from up to down.
Histogram "A" of any color should be lower than the histogram "B". In this case the histogram "B" will be colored green. Histogram "C" is red.
When the signal has been formed, place a Sell Stop one point above the highest price that is parallel with the histogram C
Awesome Oscillator cross buy (sell)
A buy signal is formed when the histogram lines intersect at 0 from the bottom and vice versa
Place a BUY or SELL STOP STOP one point above (buy) or below (sell) the highest or lowest price of the candle which is parallel with the first histogram intersecting the 0.
Twin peaks signals
Twin peaks signal is formed by two peaks where the first peak is higher than the second peak. The first C is buy signal and the second C is sell signal ( see image bellow )
Place a BUY or SELL STOP STOP one point higher (buy) or lower (sell) of the signal bars. In this case the signal is at the histogram C. the next one after the C histogram appear we put our pending orders.
Acceleration / Deceleration Oscillator (AC)
Acceleration / Deceleration Oscillator (AC) measures acceleration and deceleration of the existing momentum, Acceleration / Deceleration Oscillator (AC) overview
Acceleration / Deceleration Oscillator (AC) histogram in MetaTrader 4 is the difference between 5 / 34 momentum histogram (Awesome Oscillator) and 5-bar simple moving average on the Awesome Oscillator:
Midpoint PRICE = (HIGH + LOW) / 2
AO = SMA (midpoint PRICE, 5) - SMA (midpoint PRICE, 34)
AC = AO - SMA (AO, 5)
Where:
• HIGH - the highest bar price;
• LOW - the lowest bar price;
• SMA - simple moving average;
• AO - Awesome Oscillator.
Acceleration / Deceleration Oscillator (AC) lines intersect at 0 line is not a signal. Even so, we still do not BUY when the histogram is red and do not sell if it is green.
Buy above the zero line / sell below the zero line
A buy signal above the 0 line is formed when there are two histograms appear sequentially.
Histogram is above the zero line. Place a Buy Stop one point above the highest price level with a high second histogram.
A SELL signal is below the 0 line is formed when there are two histograms appear sequentially. Histogram under the zero line. Place a Sell Stop one point below the lowest price.
Buy below the zero line / sell above the zero line
If the histogram below the zero line, a buy signal is formed when there are 3 green histogram appears sequentially. Place a Buy Stop one point above the highest price
If the histogram is above the zero line, SELL signal is formed when there are 3 red histogram appear sequentially, Place a Sell Stop one point below the lowest price candle
If the histogram "B" or "C" cut the 0 line, then the histogram C become a signal, and do not have to wait for histogram "D" appears.
Trading in the Zone
• If both histograms (AC and AO) green, is defined as the Green Zone (a market which is bullish)
• If both are red, this is the Red Zone (a market which is bearish)
• If the histogram has a different color is called the Gray Zone (the market is in transition)
To open a buy position in the Green Zone you need at least 2 bars of green sequence, and the close price on the second bar should be higher than the previous closing price.
Balance Line Trades
Balance Line trades overview
The Balance Line is the line that indicates the absence of information to come that could affect the market (Chaos).
New information on the price chart
The idea of a fifth dimension:
Bar for buy signals when the current bar height is lower than the previous high. Bar for sell signal when the current bar is higher than the low bar the previous low
Three main principles of the Balance Line:
1) read the chart from right to left
2) If you are looking for a buy signal, look only at the highest point. If you wait for sell signal, see the lowest point
Buy signal above the Balance Line
If the price is above the Balance Line and you are waiting for a buy signal, so watch the price moves away from the Balance Line:
If you wait for prices to move away from the Balance Line then you need one more point to buy the highest or the lowest point to sell. If true, the price will move away from the Balance Line, then you need 2 more to buy the highest point or two to sell low point again.
BUY signal on the Balance Line
Follow these instructions, for a buy signal you have to wait for prices to rise again with height higher than the previous highest point where the peak is higher than basic bar
Let's assume this: the chart you see bar "1" and all previous bars.
And of course you have not seen a bar "2". "3", "4". At this point, the bar "1" can be explained as the basis for a buy signal bar because the bar "1" has a high point lower than the previous bars.
The main principle of Buy signal above the Balance Line is to place a BUY STOP at the highest point at the highest price bar before the bar "1" When the Bar "2" on the chart has the highest point lower than the bar "1", then bar "2" to Basically not a bar bar "1" again. Pending Orders must be canceled earlier and place a BUY STOP at the highest point above the bar "1" (the bar is located behind the bottom bar "2"). The same thing happened at the bar "3" and bar "B". When the bar "B" becomes essentially bar the pending order is placed 1 point above the highest point bar "3" When the bar to "4" is formed, and the bar "B" is still a basic bar, for example if you read from right to left, the bar "B" is to be the first to demonstrate the highest point of the lowest compared with the previous bar. When the height of the bar "4" lower than the pending order line, then you have not entered the market. But then the bar "6" is formed with its peak is higher than basic bar before, so you BUY STOP is executed then you have entered the market based on a Buy Signal Balance Line
Buy signal below the Balance Line
If you BUY below the Balance Line is the price you expect will move closer Balance Line (go to top). Remember the principle to 4:
• 4) If the price moves away from the Balance Line then you need another new high bar to buy or to sell the lowest. If this happens, then when the price will move closer to Balance Line 2 bars so you need to buy the next highest or next lowest 2 bars to sell.
This means you need two highest bar to get a buy signal below the Balance Line
When the bar "B" is formed and becomes essentially bar the bar "B" has a lower height than the previous bar high if you read it from right to left. In order to establish a buy signal below the Balance Line you need two higher bars on the left of the bar position "B". Among these the first two bars are the bars "3". (Because the Bar "2" does not meet the requirements for forming a signal in which the height is lower than the bar "3" then bar "2" does not exist). Then Bar "1" is the second highest bar you're looking for because of the high over the bar "3". That is why you must place a BUY STOP 1 point above the highest point formed by the bar "1" When bar "4" occurs and nothing has changed: basic bar is still at the bar "B" and the pending order has not been touched. At the Bar "5" nothing has changed as well. And when the bar "6" is formed and the pending order has been touched by the signal below the Balance Line BUY been formed.
Sell signal below the Balance Line
Sell signal below the Balance Line has the same principle with Buy Signals above the Balance Line. In both these cases you can expect the price will move away from the Balance Line. Based on the principle of the 4 (pictured above) you only need a low bar to form a signal:
Let us assume this, on the price chart, you see the bar "B" and all the bars in belakanganya. If you read from right to left, then the bar "B" to the basic bar, we can see the bar down behind a point higher than the previous bar.
You only need the lowest point of the bottom bar to place a Sell Stop one point below the bar "1". When bar "2" appears and nothing has changed: the bar "B" is still a basic bar and had not yet touched the pending order. At the Bar "3" has not yet happened.
What should be remembered is that when the next bar (before the sell stop touched) becomes the new primary bar, before signals should be ignored, and the pending order must first be canceled anyway. In this case, it does not happen. When bar "4" is formed, pending order has also touched the Sell signal below the Balance Line has happened ..
Sell signal above the Balance Line
Sell signal above the Balance Line has the same principle with the Buy signal below the Balance Line
In both cases it is expected that prices will move toward the Balance Line.
Based on the principle to 4, you only need two lows to generate a signal
Let us assume that at the chart you see bar "2" and all behind bars. Bar "2" becomes the basic bar as an example of this being the first bar that has a bottom point higher than behind bars. To ensure that prices tend to move toward the Balance Line, you need 2 pieces to form the lowest point of a signal.
• The first bar from right to left, which has a lower lows against the base bar. This is bar "1"
• The first bar from right to left, which has the lowest point of the bar "1". This is bar "0" This is why after bar "2" appears, you must place a Sell Stop one point in
below the lowest point on the bar "0". When the bar "3" and "4" appears nothing has changed: Bar "2" bar remains essentially untouched and pending orders.
When the bar "B" appears:
• The Bar "B" becomes essentially a bar and orders that were pending at the bar "0" should be deleted
• A SELL STOP newly placed under the bar "1" (the lowest point bar "4" lower than the lowest point of the basic bar "B", and the lowest point bar "1" lower than the lowest point of the bar "4")
• Pending orders untouched on the bar "6" and Sell Signals on the Balance Line has happened does not matter what the signal will be formed, you should ignore it and to form fractal signals are formed outside the Alligator's mouth
You also have to ignore the signals that are not in the same direction with the first signal formed by fractal
For all the signals are formed by the five dimensions above, there are two principles which will help you identify false signals:
• Do not sell above or buy below the mouth of the Alligator
• If the current bar is in the RED or GREEN ZONE (see back page Trading in the Zone) is required pair 2 pieces to form a buy signal peak and valley pair 2 pieces to form a SELL signal
Exit the Market
How to place Stop Loss orders
Bill Williams gives recommendations with regard to STOP LOSS:
• If the market is trending, use the Alligator's Teeth (red line) to place a stop loss.
• If the market is volatile, use the Alligator's Lips (green line) to place a Stop Loss.
• Close all positions if an opposite signal appears.
Bullish divergence / bearish convergence between the Awesome Oscillator and price signals indicate the trend has ended.
Divergence between price and the Awesome Oscillator is a signal indicating that the trend has been weak or almost over.
Market Facilitation Index (BW MFI)
Market Facilitation Index (BW MFI) analyzed a number of price changes per unit of volume.
Market Facilitation Index (BW MFI) is calculated as follows:
MFI = (HIGH - LOW) / VOLUME
Where:
• HIGH - the highest price of the current bar;
• LOW - the lowest price of the current bar;
• VOLUME - the volume of the current bar.
Signals from the Market Facilitation Index (BW MFI)
• When BW MFI and Volume rise at the same time, its means the market is moving in one direction and a lot of traders participating in market. This is a good time to be in the market.
• When BW MFI and Volume down at the same time, its means the interest trader of the market began to fade.
• When BW MFI higher and lower volume, this means the market is generally moving in one direction but no participant to build volume.
• When BW MFI down and volume up, this means there is a battle between bulls and bears (with large volumes).
Overview
Bill Williams developed unique trading system concepts between combining trading psychology and Chaos Theory. Bill Williams argues that the benefits of trading and investing are determined by human psychology, and anyone can become a profitable trader if they understand what is happening on the markets movement.
Bill Williams said the fundamental or technical analysis can not guarantee consistent profit because they do not see the actual moments in the market. Trading is a game of psychology, how to realize the self and knowledge, so the best way to become successful is to find your own trading system style, and there are two significant aspects in forex trading system : self-knowledge and understanding of the market itself.
Here is chaos Bill Williams trading system,
Indicators Bill Williams:
• Fractal
• Awesome Oscillator
• Acceleration / Deceleration
• Zone (phase energy / force combination)
• Balance Line (strange attractors)
Remember, before fractal appear, all the rest signals indicator should be ignored. But after open position formed by fractal signal, the trader can add positions given by other Bill Williams signal indicators.
Alligator and Gator
The Alligator
Bill Williams describes the Alligator as a compass that can keep your trading is in the right direction and not out of trading range. Alligator is a combination of three balance lines:
The Alligator
Alligator's Jaw (the blue line) - 13-period moving average
Alligator's Teeth (the red line) - 8-period moving average
Alligator's Lips (the green line) - 5-period moving average
If the three lines are parallel, if the Alligator sleep the market was in the range-bound state. The longer he sleep the more hungry the Alligator become. When Alligator wake up, the Alligator will hunt the price as far as possible, If the Alligator sleep, try not to move first. When Alligator wake up, Alligator will open the mouth and start hunting. After he full, the Alligator will sleep again, so it's time to take profits.
If the Alligator sleep, the market is in an uptrend or downtrend
• if the price is above the Alligator's mouth then the price is an uptrend
• if the price is below the Alligator's mouth then the price is a downtrend
The formula for the Alligator:
Midpoint PRICE = (HIGH + LOW) / 2
Alligator's JAW = SMMA (midpoint PRICE, 13, 8)
Alligator's Teeth = SMMA (midpoint PRICE, 8, 5)
Alligator'S LIPS = SMMA (midpoint PRICE, 5, 3)
Where:
• HIGH - the highest bar price;
• LOW - the lowest bar price;
• SMMA (A, B, C) - smoothed moving average (A - smoothed data, B - smoothing period, C - move into the future),
• Alligator'S JAW - blue line;
• Alligator's Teeth - red line;
• Alligator'S LIPS - green line.
The Gator Oscillator
Gator Oscillator shows the degree of convergence / divergence of the Balance Lines:
Gator Oscillator displayed two histograms
• The histogram is above the 0 line shows the distance between the blue lines with red lines (between the Alligator's jaw with teeth)
• The histogram is below the 0 line shows the distance between the red lines with green lines (between the Alligator's teeth with lips)
Green and red Histogram
• The red histogram bar means the current bar is lower than the previous bar
• The green histogram bar means bar the current bar is higher than the previous bar
Fractals
Bill Williams said it better do not trade before the first fractal is formed.
A buy fractal is a series of five consecutive bars where the highest point preceded by 2 lower high and followed by 2 lower high. A sell fractal is a series of five consecutive bars where the lowest point preceded by 2 higher low and followed by 2 higher low
Fractal signals:
• If a buy fractal is above the Alligator's Teeth (red line) BUY STOP one point above HIGH of fractal candle
• If a sell fractal is below the Alligator's Teeth (red line) SELL STOP one point below the LOW of fractal candle
Awesome Oscillator (AO)
Awesome Oscillator (AO) Overview
Awesome Oscillator (AO) describe the momentum of the last 5 bars compared with the momentum of the last 34 bars.
Awesome Oscillator (AO) is difference between 34 and 5 period SMA of the bar's midpoints (H + L) / 2. Awesome Oscillator (AO) is plotted on the chart as a histogram.
The Awesome Oscillator buy signal
Awesome Oscillator Buy Signal formed when the histogram is above the zero line, changes direction from down to up.
When the signal has been formed, place a BUY STOP above the highest price point.
Make sure that we only BUY if only the current histogram is green and SELL if red histogram.
Awesome Oscillator Saucer sell signal
Sell signal Awesome Oscillator appears when the histogram is below the 0 and changes its direction from up to down.
Histogram "A" of any color should be lower than the histogram "B". In this case the histogram "B" will be colored green. Histogram "C" is red.
When the signal has been formed, place a Sell Stop one point above the highest price that is parallel with the histogram C
Awesome Oscillator cross buy (sell)
A buy signal is formed when the histogram lines intersect at 0 from the bottom and vice versa
Place a BUY or SELL STOP STOP one point above (buy) or below (sell) the highest or lowest price of the candle which is parallel with the first histogram intersecting the 0.
Twin peaks signals
Twin peaks signal is formed by two peaks where the first peak is higher than the second peak. The first C is buy signal and the second C is sell signal ( see image bellow )
Place a BUY or SELL STOP STOP one point higher (buy) or lower (sell) of the signal bars. In this case the signal is at the histogram C. the next one after the C histogram appear we put our pending orders.Acceleration / Deceleration Oscillator (AC)
Acceleration / Deceleration Oscillator (AC) measures acceleration and deceleration of the existing momentum, Acceleration / Deceleration Oscillator (AC) overview
Acceleration / Deceleration Oscillator (AC) histogram in MetaTrader 4 is the difference between 5 / 34 momentum histogram (Awesome Oscillator) and 5-bar simple moving average on the Awesome Oscillator:
Midpoint PRICE = (HIGH + LOW) / 2
AO = SMA (midpoint PRICE, 5) - SMA (midpoint PRICE, 34)
AC = AO - SMA (AO, 5)
Where:
• HIGH - the highest bar price;
• LOW - the lowest bar price;
• SMA - simple moving average;
• AO - Awesome Oscillator.
Acceleration / Deceleration Oscillator (AC) lines intersect at 0 line is not a signal. Even so, we still do not BUY when the histogram is red and do not sell if it is green.
Buy above the zero line / sell below the zero line
A buy signal above the 0 line is formed when there are two histograms appear sequentially.
Histogram is above the zero line. Place a Buy Stop one point above the highest price level with a high second histogram.
A SELL signal is below the 0 line is formed when there are two histograms appear sequentially. Histogram under the zero line. Place a Sell Stop one point below the lowest price.
Buy below the zero line / sell above the zero line
If the histogram below the zero line, a buy signal is formed when there are 3 green histogram appears sequentially. Place a Buy Stop one point above the highest price
If the histogram is above the zero line, SELL signal is formed when there are 3 red histogram appear sequentially, Place a Sell Stop one point below the lowest price candleIf the histogram "B" or "C" cut the 0 line, then the histogram C become a signal, and do not have to wait for histogram "D" appears.
Trading in the Zone
• If both histograms (AC and AO) green, is defined as the Green Zone (a market which is bullish)
• If both are red, this is the Red Zone (a market which is bearish)
• If the histogram has a different color is called the Gray Zone (the market is in transition)
To open a buy position in the Green Zone you need at least 2 bars of green sequence, and the close price on the second bar should be higher than the previous closing price.
Balance Line Trades
Balance Line trades overview
The Balance Line is the line that indicates the absence of information to come that could affect the market (Chaos).
New information on the price chart
The idea of a fifth dimension:Bar for buy signals when the current bar height is lower than the previous high. Bar for sell signal when the current bar is higher than the low bar the previous low
Three main principles of the Balance Line:
1) read the chart from right to left
2) If you are looking for a buy signal, look only at the highest point. If you wait for sell signal, see the lowest point
Buy signal above the Balance Line
If the price is above the Balance Line and you are waiting for a buy signal, so watch the price moves away from the Balance Line:
If you wait for prices to move away from the Balance Line then you need one more point to buy the highest or the lowest point to sell. If true, the price will move away from the Balance Line, then you need 2 more to buy the highest point or two to sell low point again.
BUY signal on the Balance Line
Follow these instructions, for a buy signal you have to wait for prices to rise again with height higher than the previous highest point where the peak is higher than basic bar
Let's assume this: the chart you see bar "1" and all previous bars.
And of course you have not seen a bar "2". "3", "4". At this point, the bar "1" can be explained as the basis for a buy signal bar because the bar "1" has a high point lower than the previous bars.
The main principle of Buy signal above the Balance Line is to place a BUY STOP at the highest point at the highest price bar before the bar "1" When the Bar "2" on the chart has the highest point lower than the bar "1", then bar "2" to Basically not a bar bar "1" again. Pending Orders must be canceled earlier and place a BUY STOP at the highest point above the bar "1" (the bar is located behind the bottom bar "2"). The same thing happened at the bar "3" and bar "B". When the bar "B" becomes essentially bar the pending order is placed 1 point above the highest point bar "3" When the bar to "4" is formed, and the bar "B" is still a basic bar, for example if you read from right to left, the bar "B" is to be the first to demonstrate the highest point of the lowest compared with the previous bar. When the height of the bar "4" lower than the pending order line, then you have not entered the market. But then the bar "6" is formed with its peak is higher than basic bar before, so you BUY STOP is executed then you have entered the market based on a Buy Signal Balance Line
Buy signal below the Balance Line
If you BUY below the Balance Line is the price you expect will move closer Balance Line (go to top). Remember the principle to 4:
• 4) If the price moves away from the Balance Line then you need another new high bar to buy or to sell the lowest. If this happens, then when the price will move closer to Balance Line 2 bars so you need to buy the next highest or next lowest 2 bars to sell.
This means you need two highest bar to get a buy signal below the Balance Line
When the bar "B" is formed and becomes essentially bar the bar "B" has a lower height than the previous bar high if you read it from right to left. In order to establish a buy signal below the Balance Line you need two higher bars on the left of the bar position "B". Among these the first two bars are the bars "3". (Because the Bar "2" does not meet the requirements for forming a signal in which the height is lower than the bar "3" then bar "2" does not exist). Then Bar "1" is the second highest bar you're looking for because of the high over the bar "3". That is why you must place a BUY STOP 1 point above the highest point formed by the bar "1" When bar "4" occurs and nothing has changed: basic bar is still at the bar "B" and the pending order has not been touched. At the Bar "5" nothing has changed as well. And when the bar "6" is formed and the pending order has been touched by the signal below the Balance Line BUY been formed.
Sell signal below the Balance Line
Sell signal below the Balance Line has the same principle with Buy Signals above the Balance Line. In both these cases you can expect the price will move away from the Balance Line. Based on the principle of the 4 (pictured above) you only need a low bar to form a signal:
Let us assume this, on the price chart, you see the bar "B" and all the bars in belakanganya. If you read from right to left, then the bar "B" to the basic bar, we can see the bar down behind a point higher than the previous bar.
You only need the lowest point of the bottom bar to place a Sell Stop one point below the bar "1". When bar "2" appears and nothing has changed: the bar "B" is still a basic bar and had not yet touched the pending order. At the Bar "3" has not yet happened.
What should be remembered is that when the next bar (before the sell stop touched) becomes the new primary bar, before signals should be ignored, and the pending order must first be canceled anyway. In this case, it does not happen. When bar "4" is formed, pending order has also touched the Sell signal below the Balance Line has happened ..
Sell signal above the Balance Line
Sell signal above the Balance Line has the same principle with the Buy signal below the Balance Line
In both cases it is expected that prices will move toward the Balance Line.
Based on the principle to 4, you only need two lows to generate a signal
Let us assume that at the chart you see bar "2" and all behind bars. Bar "2" becomes the basic bar as an example of this being the first bar that has a bottom point higher than behind bars. To ensure that prices tend to move toward the Balance Line, you need 2 pieces to form the lowest point of a signal.
• The first bar from right to left, which has a lower lows against the base bar. This is bar "1"
• The first bar from right to left, which has the lowest point of the bar "1". This is bar "0" This is why after bar "2" appears, you must place a Sell Stop one point in
below the lowest point on the bar "0". When the bar "3" and "4" appears nothing has changed: Bar "2" bar remains essentially untouched and pending orders.
When the bar "B" appears:
• The Bar "B" becomes essentially a bar and orders that were pending at the bar "0" should be deleted
• A SELL STOP newly placed under the bar "1" (the lowest point bar "4" lower than the lowest point of the basic bar "B", and the lowest point bar "1" lower than the lowest point of the bar "4")
• Pending orders untouched on the bar "6" and Sell Signals on the Balance Line has happened does not matter what the signal will be formed, you should ignore it and to form fractal signals are formed outside the Alligator's mouth
You also have to ignore the signals that are not in the same direction with the first signal formed by fractal
For all the signals are formed by the five dimensions above, there are two principles which will help you identify false signals:
• Do not sell above or buy below the mouth of the Alligator
• If the current bar is in the RED or GREEN ZONE (see back page Trading in the Zone) is required pair 2 pieces to form a buy signal peak and valley pair 2 pieces to form a SELL signal
Exit the Market
How to place Stop Loss orders
Bill Williams gives recommendations with regard to STOP LOSS:
• If the market is trending, use the Alligator's Teeth (red line) to place a stop loss.
• If the market is volatile, use the Alligator's Lips (green line) to place a Stop Loss.
• Close all positions if an opposite signal appears.
Bullish divergence / bearish convergence between the Awesome Oscillator and price signals indicate the trend has ended.
Divergence between price and the Awesome Oscillator is a signal indicating that the trend has been weak or almost over.
Market Facilitation Index (BW MFI)
Market Facilitation Index (BW MFI) analyzed a number of price changes per unit of volume.
Market Facilitation Index (BW MFI) is calculated as follows:
MFI = (HIGH - LOW) / VOLUME
Where:
• HIGH - the highest price of the current bar;
• LOW - the lowest price of the current bar;
• VOLUME - the volume of the current bar.
Signals from the Market Facilitation Index (BW MFI)
• When BW MFI and Volume rise at the same time, its means the market is moving in one direction and a lot of traders participating in market. This is a good time to be in the market.
• When BW MFI and Volume down at the same time, its means the interest trader of the market began to fade.
• When BW MFI higher and lower volume, this means the market is generally moving in one direction but no participant to build volume.
• When BW MFI down and volume up, this means there is a battle between bulls and bears (with large volumes).
Forex is simple follow the trend and you will rich.
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