Highly reputed foreign exchange trader and guru Bill Williams is well known for developing a number of useful trading tools. His “Trading Chaos” range of books go over several of his indicators and how they aim to help traders understand the push and pull of the markets. In this article we look over some of his most popular Chaos indicators as well as a light introduction to his Trading Chaos theory.
The Chaos Range Of Foreign Exchange Indicators
An Overview Of The Trading Chaos Theory. Bill Williams firmly believed that trading profits could be strongly enhanced when human psychology and the scientific Chaos theory are combined to form a complete trading system. He therefore developed a series of indicators designed to make sense and order from the seemingly random behaviour of the markets. He suggested that successful foreign exchange trading was a function of various market dimensions including:
- Phase Space (also known as fractals)
- Phase Energy Or Momentum
- Phase Force (Acceleration And Deceleration)
- Phase Energy
- Strange Attractors
By including all of these dimensions within a trading system, the trader is better able to pick out price action movement with better accuracy.
Chaos Accelerator Oscillator. Very much a momentum indicator, the Accelerator Oscillator aims to pick out how price momentum is either accelerating or decelerating. Part of the Bill Williams Chaos Theory suggests that prior to notable changes in price action it is the momentum that must change. Therefore, when a foreign exchange trader is able to spot changes in the acceleration of momentum, they are able to predict price action changes before price so much as quivers. The Acceleration Oscillator is designed to help traders do exactly that – the indicator is presented as a histogram with bars that are either red or green, and which may dip above or below the horizontal level. The colour coding makes this foreign exchange trading indicator extremely simple to use – the trader should never buy on a red bar, or sell on a green one.
Chaos Alligator Indicator. The main purpose of the Alligator foreign exchange trading indicator is to help the trader stay on the right side of the trend. The Alligator indicator has three lines – the jaws (blue), teeth (red) and lips (green). When the markets are truly trending, these three lines will be comfortably apart – price action will also be either above or below the three lines, depending on whether there is an uptrend or a downtrend. In this instance, the trader should be taking a trend based position within the market. In the instance of the three Alligator indicator lines being intertwined, the markets are either consolidating or range bound – according to the indicator rules, the trader should be out of the market during these times.
Fractals. Fractals can often be powerfully combined with the Alligator Indicator discussed above to generate buy or sell trading signals.
Awesome Oscillator. This is yet another momentum based indicator that is displayed as a histogram on the foreign exchange chart. The indicator is comprised of a series of red or green lines that will be pointing either upwards or downwards from the horizontal zero level. The Awesome Oscillator can be used as part of Bill Williams Chaos theory, and has been devised to be compatible with both the Alligator Indicator as well as the Fractals.
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