Bill Williams Trading Indicators | Best Trading Strategies
Have you ever wondered about the people behind some of the most effective business tools and strategies? Because while most just follow in the footsteps, someone paves the way. Bill Williams Trader, Author and psychologist was one of the market experts who managed to see patterns in the seemingly chaotic price movement and turned them into their profit. Today we are talking about Bill Williams ‘ idea of commercial chaos.
Bill Williams history trader
Bill Williams, The Merchant, was born in 1939 and is widely known as a visionary and ancestor of modern commercial psychology. Williams achieved enormous levels of success in the commodity, stock and Forex markets. In addition to that, he became a visionary and ancestor of modern commercial psychology, which ended up leading hundreds of traders to remarkable success.
However, it is also worth noting that Bill Williams ‘ Commercial career took place mainly in the 80s, meaning that there is a need for a new perspective when it comes to considering his strategies. To begin with, online commerce was not even remotely a thing, in the late twentieth century. Unlike today, only a select category of people could access and benefit from the market.
Therefore, it makes a lot of sense that although Williams ‘ ways of negotiating were very effective, today they must be viewed from a different perspective. But before we get into the technical aspects of the implementation of Bill Williams ‘ chaos trading indicators, let’s first look at the basis of the theory.
Bill Williams chaos trade theory
The philosophy described in Trading Chaos by Bill Williams, a book originally published in 2004, is a combination of psychology and fractal geometry. Williams was a well-known critic of established analytical techniques. In his own words, the technical and fundamental analysis strategies used in his day lacked objectivity. This inspired him to apply some of his financial knowledge beyond and find specific patterns in the virtually sporadic price movement.
At first, the biggest announcement behind the commercial chaos that Bill Williams brought to the world was not the precise mathematics, but the author’s own results. In less than two years Williams has increased its initial investment of ten thousand dollars by two hundred thousand. Needless to say, this has attracted the attention of many traders throughout the market.
The biggest obstacle in the way of traders who were inspired by Bill Williams ‘ Trading Solutions was their lack of theoretical knowledge. This led Williams to establish Profitunity Trading Group, an educational organization that taught traders to correctly implement the system and indicators developed by Williams. After the founders passed in 2019, Profitunity is now run by her daughter, Justine Williams-Lara.
After doing some research, we have managed to gather information on how Bill Williams’s trader philosophy applied by today’s traders. Below you will find the idea behind the general method, as well as useful tips on using each particular indicator in your trading process.
Bill Williams Trading System
Bill Williams trade chaos vision originated from his belief that traditional fundamental and technical analysis will never lead to consistent results. Markets, like Forex, are not linear and dynamic, which means that the way we analyze them must be multidimensional. The dimensions, described by Williams, include: fractal, impulse, acceleration and deceleration, zone and line of equilibrium. We will return to each of these concepts later, when we go into the description of the technical indicators.
To help traders even more, each bar of the histogram is color-coded. This way, if the bar is higher than the previous one, it will appear green and if it was lower, it will be red. As Gator clearly shows the convergence and interlacing of Alligator lines during awake and asleep States, it helps to accurately identify the trend and structure its next movements according to it.
While Alligator and Gator generally call for action, fractals are there to point out specific parts of the table that deserve the trader’s attention. Specific fractal configurations are read as commercial signals. In fact, Williams advised not to even consider trading before the first fractal is activated.
In the chart, fractals can appear as Arrows, points, or lines, depending on their configuration. They can also be color coded to represent buy and sell signals. But even without relying on design, you will have no trouble reading fractals as commercial signals. A buy fractal is a set of five consecutive bars (or candles), with the highest preceded by two lower highs as well as followed by two lower highs. And the sell fractal will be the lowest minimum, preceded by two higher minimums and followed by two higher minimums. It is important to note that both types of fractals can share bars. The signals generated by fractals can be:
When a buy fractal is above the Red Line, Buy Stop is placed a mark above the maximum of the ascending fractal.
When a sales fractal is below the Red Line, a sales stop places a mark below that fractal.
Logically: you do not buy if the fractal is under the teeth and you do not sell if it is above.
Fractals are considered valid until activated or followed by a new fractal in the same direction. In the second scenario, the original fractal is ignored and the pending order based on it is deleted. In addition, if the fractals continue to form in the direction with their original position, you may feel free to add to it.
Impressive oscillator (AO)
The impressive oscillator (AO) is a pulse measurement tool that represents the difference between a 5-period MA and a 34-period MA. Thus, the current momentum of the last 5 bars is compared to the previous 34 bars. The AO is displayed as a histogram at the bottom of the chart, with green and red bars. The Greens appear when they are higher than the bar before them and the Reds appear when they are lower.
Although the impressive oscillator is capable of generating three buy and three sell signals, those are ignored unless a fractal is activated outside of the crocodile’s balance lines. However, there are still strategies that are based on the AO tool, such as the Awesome Oscillator Saucer buy signal or Awesome Oscillator Twin Peaks.
Acceleration and deceleration oscillator (AC)
According to the idea of trade chaos by Bill Williams, before the price changes we see a change in momentum. But even before the momentum, there’s a change in acceleration. This serves as the basis for the acceleration and deceleration oscillator (AC).
AC works by determining the difference between the 5/34 pulse histogram on the impressive oscillator and the simple 5 MA pEriOd on the impressive oscillator. Unlike most oscillators, including the AO, when the acceleration and deceleration oscillator crosses its zero line, it is not considered a valid signal. The rest of the rules remain the same: do not buy if the histogram is red and do not sell if it is green.
Market facilitation index)
The market facilitation index (BW MFI) analyses the importance of price change for each volume unit. BW MFI can generate a number of valuable signals. For example, when the market facilitation index rises at the same time as the volume, it is a good indicator that interest is growing and it is a good time to be in the market already. On the other hand, when the BW MFI declines along with the volume, interest is fading and the continuing trend is very likely to end soon.
And then, when the market facilitation index does not agree with the volume, it has a completely new meaning. In this way, when BW MFI points upwards because the volume is decreasing, it means that although the market continues to move in the same direction, there are no new participants to back it up. This ultimately means that the main driving power behind the movement is speculation.
In the opposite scenario, when the market facilitation index points down, but the volume increases, it indicates a battle between bulls and bears, with their forces almost equal. On the chart, it looks a lot like a market in range, which we already know usually bursts in a fast and powerful move in the opposite direction. It is crucial to detect the exact direction of the breakup in order to build a successful strategy for your next moves.
Coming out according to Bill Williams ‘ trade indicators
Finally, in terms of ending its operations, the main advice within the chaos trading approach is to close its position when the price closes beyond the red line under the conditions of a trend market. In addition, the Bill Williams Trading System offers several solutions for setting up a Stop Loss order. For example, in volatile markets, the Stop Loss can be placed at the same level as the Green Line.
Bill Williams indicators in Metatrader 4
Metatrader 4 offers a comprehensive set of built-in technical indicators and all Bill Williams trade indicators mentioned above are part of the package. To add any of the BW indicators to the chart, go to the Insert tab, choose indicators, and then choose the required option from a menu labeled Bill Williams. In general, new operators are advised not to interfere with the default settings of the indicators, as they were designed in the way they comply with the strategy of their creator. What you may feel free about changing, however, is the color setting, which can be very useful in indicators such as the market facilitation index.
Try Bill Williams Chaos Trading in demo mode
Before you go ahead and try to trade the chaos of Bill Williams in action, consider giving it a trial run using a free demo account. Demo accounts are exact copies of live MT4 accounts, with the only difference: each transaction is simulated and the trader is not risking anything to participate in the process. That said, the knowledge and experience you get is very real and you will have a great advantage of entering the real market once you have completed your practice.
What’s more, a demo account is a good way to find out if Bill Williams ‘ trade is right for you specifically. There are so many approaches and styles when it comes to currency trading, some are complex, some are simple, some are fast and some take a good amount of time to be mastered and implemented. Your task is to figure out which method suits you best, because according to Bill Williams himself, self-knowledge is the first step to commercial success.