"I don't care which direction it (the market) goes," - B. William
Bill Williams, the creator of one of the most popular and discussed systems of recent years, claims that price movements are random and unpredictable. That is why his market analysis does not include forecasting elements. In our article we will briefly review the main aspects of the system based on the books of its author and some other experts. The main problem that almost all traders face is that most of the existing methods are reduced to analyzing the market trendiness and are subjective in one way or another. B. Williams believes that the greatest danger for the trading system is the following subjectivism in interpreting its signalsTherefore, his method is as mechanistic as possible and thus relieves the trader of stress. If we accept that price movements are random, then we must recognize that our ability to predict future price movements is very limited, and we must eliminate the element of prediction from market analysis as much as possible. According to the author, the charts themselves will tell you what to do. This is the key to stress-free trading.
Methodology B. Williams belongs to the class of trend methods that use trends of any duration for profit extraction. The distinctive feature of such methods is the procedure of maximizing the market position when the trend is confirmed and minimizing it when it weakens. The main problem when using such a strategy is the procedure of "pyramids" - increasing a position when its profitability increases and reducing it when the trend weakens. Studies show that markets are in a trend state 15% - 30% of total time, and it is during these periods that a trader should be as aggressive as possible.
Talk a little bit about Bill Williams' tools....
Fractal
Fractals - a sequence of five or more bars, where before and after the central bar (or group of bars) there are two bars with lower maximums for signals to take long positions or two higher minimums for signals to take short positions. Bar minima are irrelevant for upward fractals and bar maxima are irrelevant for downward fractals.
The market moves in one direction or another. After some time, buyers who wanted to buy have bought, and the market has experienced a pullback due to lack of buyers. Then some new information (Chaos) starts to influence traders. A new flood of buying occurs, and the market, looking for a place of mismatch between value and agreement in price, moves up.
If the market's momentum (momentum) and buying power are large enough to overcome the preceding fractal to the upside, then we will be able to place a buy order to make one trade at a price that is one minimum price change (tick) higher than the maximum of the fractal.
First fractal The buy order is canceled by a more recent fractal, at the peak of which the buy order is placed. In addition, we put another sell order on the lower fractal. After that we get a price corridor.
We do not want to be in the market when it is in a small movement - flat. We use only pending orders and keep "powder dry". When a signal triggers, we start adding quickly with signals.
Alligator
Alligator is a combination of Balance Lines using fractal geometry and nonlinear dynamics. In order not to overload with descriptions, we would like to note that you can find out how this indicator is built in the help to the MetaTrader4.
AO
Amazing Oscillator "AO" measures the market's momentum at a given point in time on the last 5 bars compared to the momentum on the last 34 bars.
It represents a 34-period simple moving average of the center values of bars (H-L)/2 subtracted from a 5-period simple moving average of the center points of (H-L)/2, depicted in histogram form.
{ "AUTH_REF". tells us exactly what's going on with the current market momentum.
With { "AUTH_REF". The following signals are defined: "saucer", "zero line crossing" and "two peaks".
Buy signal "Saucer"
This is the only buy signal that occurs when the histogram is above the zero line.
1. The saucer signal is formed when the histogram changes direction from descending to ascending.
2. For education "Saucer" signal at least three histogram columns are needed.
3. Stop order to buy is set by one minimum price change above the maximum of the price bar, which corresponds to the first, highest, column "c" of the histogram.
Buy signal "Zero line crossing"
1. A buy signal is formed when the histogram goes from negative values to positive values. This happens when the histogram crosses the zero line.
2. A buy stop order should be placed one minimum price change higher than the maximum of the price bar that corresponds to the first bar of the histogram that crossed the zero line.
Buy signal "Two Peaks"
This is the only buy signal that can be formed when the histogram values lie below the zero line.
1. A signal is formed when you have a downward looking peak (the lowest low) that is below the zero line, followed by another downward looking peak that is higher (a negative number that is smaller in absolute value, so it is closer to the zero line) than the previous peak looking down.
2. The histogram should be below the zero line between the two peaks. If the histogram crosses the zero line between the peaks, the buy signal is not valid. However, a buy signal "Zero line crossing" is created.
3. Each new histogram peak should be higher (smaller modulo negative number that is closer to the zero line) than the previous peak.
4. If an additional, higher peak is formed (which is closer to the zero line) and the histogram has not crossed the zero line, then an additional trading signal to buy.