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Theory CHAOS

Good evening to all, through the presentation of Jaguar 1637, I want to ask a question to this forum, I have a great interest in chaos theory applied to forex, I will examine in particular the similarities that exist on different time, can you tell me the original theorywhich time he went to ossevare, because I do not remember if H1 and then examined thecase in M1 or D1 was examined in M1.

Thanks in advance.

Comments

  • JohnLast 3322 days ago

    What is discussed here, was discussed in TSD too. 

    Basically two things:

    Hurst exponent and its estimation.

    The Lyapunov exponent.

    Please check this article by Dostal, it summarizes everything we discuss.

    I have found a book about the correlation dimension.

     

     

     

  • Antony 3322 days ago
    JohnLast thanks for your answer and your linkbut if not you tell me if I wanted to look for the similarity as the ratio of scalefirst I have to look for it on D1 and then go searching onor before M1 to M1 and then try on D1?
    I mean before seen in a long biggest chaos theory or a more down time?

    thank you!
     
     
     
  • JohnLast 3322 days ago

    I have no idea m8.

     

  • jaguar1637 3274 days ago

    Bill William’s Chaos Theory (mod by jaguar) => New fractal_bands1 on files

    Fractals

    Bill Williams says that it is better not to take trades before the first fractal is triggered.

    A buy fractal is a series of five consecutive bars where the highest high is preceded by two lower highs and is followed by two lower highs. The opposite configuration would be a sell fractal. Both fractals (Buy and Sell) may share bars.

     

    Bill William’s Chaos Theory

    Fractals

    Bill Williams says that it is better not to take trades before the first fractal is triggered.

    A buy fractal is a series of five consecutive bars where the highest high is preceded by two lower highs and is followed by two lower highs. The opposite configuration would be a sell fractal. Both fractals (Buy and Sell) may share bars.

     

    Fractals generate the following signals:

    • if a buy fractal is above the the Fractals Band Medium line we would place a Buy Stop one tick above the high of the up fractal;
    • if a sell fractal is below the the Fractals Band Medium line we would place a Sell Stop one tick below the low of the fractal sell signal.
    • We would not take a buy if a fractal is formed below the Fractals Band Medium line
    • We would not take a sell if a fractal is formed above the Fractals Band Medium line

    Fractals are valid until they are either triggered or a new fractal in the same direction appears (in this case the previous signal has to be ignored and the pending order has to be deleted).

    Fractals are objects of the first dimension. Only after the breakout of the first fractal can the following signals be accepted to open positions in the direction of the first signal. Signals from the consecutive fractals in the direction of the first deal can be used for adding on to the position.

  • JohnLast 3274 days ago

    Basically this is a price action pattern and does not have even a remote connection with the real chaos theory.

    Nevertheless this does not mean that the pattern is bad or that the Bill Williams methods are worthless.

     

     

  • jaguar1637 3274 days ago

    Awesome Oscillator (AO) Overview

    Awesome Oscillator (AO) determines market momentum (the second of five market dimensions) at a given time on the last 5 bars,comparing them to the momentum on the last 34 bars.

    Awesome Oscillator (AO) is simply the difference between the 34-period and 5-period simple moving averages of the bar's midpoints (H+L)/2. Awesome Oscillator (AO) is displayed on the chart as a histogram:

    AlpariAcademy_68.gif

    Awesome Oscillator (AO)

    In order to add Awesome Oscillator in MetaTrader 4 use the "Insert -> Indicators -> Bill Williams – Awesome Oscillator" menu sequence.

    In MetaTrader 4 each histogram bar which is higher than the preceding one is green, each histogram bar which is lower than the preceding one is red.

    Awesome Oscillator generates three buy signals and three sell signals, but we do not use them until the first fractal buy or sell signal is triggered outside the Alligator's mouth.

    The Awesome Oscillator Saucer buy signal

    Awesome Oscillator Saucer buy signal is generated when the histogram which is above the zero line changes its direction from falling to rising:

    The Awesome Oscillator Saucer buy signal

    Histogram “A” bar, of any color, should be higher than histogram “B” bar. Histogram “B” bar must be red. Histogram “C” bar (signal) must be green.

    Once the signal has been generated, place a Buy Stop one tick above the high of the price bar that corresponds to the histogram “C” bar.

    The most recent saucer signal cancels all previous ones (do not forget to delete pending orders after the signal is cancelled). Bear in mind that we buy only if the current histogram bar is green and we sell only if the current histogram bar is red.

    The Awesome Oscillator Saucer sell signal

    Awesome Oscillator Saucer sell signal is the opposite of the Awesome Oscillator Saucer buy signal (see above). This signal is generated when the histogram that is below the zero line changes its direction from rising to falling:

    AlpariAcademy_70.gif

    The Awesome Oscillator Saucer sell signal

    Histogram “A” bar, of any colour, should be lower than histogram “B” bar. Histogram “B” bar must be green. Histogram “C” bar (signal) must be red.

    Once the signal has been generated, place a Sell Stop one tick lower than the low of the price bar that corresponds to the histogram “C” bar. The most recent Awesome Oscillator saucer sell signal cancels all previous signals.

    Awesome Oscillator cross buy (sell)

    A buy (sell) signal is generated when the histogram crosses the zero line from below (above):

    AlpariAcademy_71.gif

    The Awesome Oscillator cross buy (sell)

    Place a Buy Stop (Sell Stop) one tick above the high of the price bar (below the low of the price bar) that corresponds to the first bar that crosses the zero line. If there is a buy signal, histogram “B” bar (a signal one) is green, if there is a sell signal it is red.

    Twin peaks signals

    A buy (sell) signal called the Twin Peaks buy (sell) signal is generated when the histogram is lower (higher) than the zero line, and the last indicator's bottom is higher (last indicator's top is lower) than the preceding one. Between these two bottoms (tops) the histogram can never be higher (lower) than zero:

     

    The Awesome Oscillator Twin Peaks signal

    The Twin Peaks buy signal is the only buy signal that is created below the zero line. Similarly, the Twin Peaks sell signal is the only sell signal that is created above the zero line.

    Place a Buy Stop (Sell Stop) one tick higher than the top (lower than the bottom) of the signal bar. In the case of a buy signal, histogram “C” bar (a signal one) is always green, otherwise it is red.

    Never buy on a red histogram bar and never sell on a green one. If an “unfriendly” histogram bar occurs before the execution of a pending order, which was placed in the direction of the Awesome Oscillator signal, the signal has to be ignored and the order has to be deleted.

  • jaguar1637 3274 days ago

    Acceleration / Deceleration Oscillator (AC)

     

    Acceleration / Deceleration Oscillator (AC) measures the acceleration and deceleration of the current momentum (the third market dimension).

    Acceleration / Deceleration Oscillator (AC) overview

    Bill Williams says that before the price behaviour changes, the momentum changes and, even before the momentum, we see the change in the acceleration.

    Acceleration / Deceleration Oscillator (AC) histogram in MetaTrader 4 is the difference between 5/34 momentum histogram (Awesome Oscillator) and a 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:

     

    The Acceleration / Deceleration Oscillator in MetaTrader 4

     

    In order to add it use the "Insert -> Indicators -> Bill Williams – Awesome Oscillator" menu sequence.

    Unlike the Awesome Oscillator, if the Acceleration / Deceleration Oscillator (AC) crosses the zero line, then it is not a signal. However, we still never buy if a histogram bar is red and never sell if it is green.

    Buy above the zero line / sell below the zero line

    A buy above the zero line signal is generated when there are two consecutive green histogram bars (a green histogram bar is a bar whose high is higher than the preceding bar's high):

    The historgam is above the zero line. Place a Buy Stop one tick above the high of the price bar that corresponds to the second highest high («C»).

    A sell below the zero line signal is generated when there are two consecutive red histogram bars (a red histogram bar is the bar whose low is lower than the preceding bar's low). The historgam is below the zero line. Place a Sell Stop one tick below the low of the price bar that corresponds to the second lowest low («C»).

    Buy below the zero line / sell above the zero line

    If the histogram is below the zero line, a buy signal is generated when there are three consecutive green histogram bars. Place a Buy Stop one tick above the high of the price bar that corresponds to the third highest high (“D”).

    If the histogram is above the zero line , a sell signal is generated when there are three consecutive red histogram bars:

    Place a Sell Stop one tick below the low of the price bar that corresponds to the third lowest low on the histogram (“D”).

    If histogram “B” or “C” bar crosses the zero line, then histogram “C” bar becomes a signal bar, and there is no need to wait for the “D” bar to occur.

    • No matter what signal is created you must ignore it until the first fractal buy or sell signal is triggered outside the Alligator's mouth.
    • You should ignore signals that are not in the same direction as the first signal from fractal.
    • If Acceleration / Deceleration Oscillator generates a signal but the histogram changes its colour before the pending order is executed, then the signal has to be ignored and the order has to be deleted.
  • jaguar1637 3274 days ago

    Trading in the Zone

     

    When both the momentum (Awesome Oscillator - AO) and acceleration (Acceleration / Deceleration Oscillator - AC) have the same direction (both green or red) this means that the momentum is accelerating in the favorable direction. Such a situation gives an opportunity to create the Zone (the fourth dimension):

    • If both histogram bars (AC and AO) are green, this is defined as the Green Zone (a very bullish market).
    • When both are red this is the Red Zone (a very bearish market).
    • If histogram bars point in opposite directions then it is the Gray Zone (market is in transition).

    In order to open a new long positions in the Green Zone (short positions in the Red Zone) you need to have at least two consecutive green (red) bars, and the close price of the second bar must be higher (lower) than the closing price of the preceding one.

    However, we stop adding on to the Zone after five consecutive green or red histogram bars , as it is unusual for the market to have more than 6-8 bars of one colour. After the fifth green (red) histogram bar has occured, place a Stop Loss order one tick below the low (above the high) of the fifth bar. If the stop order is not executed on the next bar, then you should change it one tick below the low (above the high) of the sixth bar etc.

  • jaguar1637 3274 days ago

    Balance Line Trades

    Balance Line Trades Overview

    Balance Line trades is the fifth market dimension. The Balance Line is the line where the price would be if there were no new incoming information (Chaos) affecting the market. Mathematical calculations and computerised model analyses helped Bill Williams to find the Balance Line and build a histogram, which can be used to define the distance between the price and the Balance Line. To his surprise, Bill Williams found that this distance can be defined by the Awesome Oscillator histogram.

    Whenever new information comes into the market, it is easier (takes less energy) for the price to move away from the Balance line than to move towards it ("it is easier to go downhill than uphill").

    AlpariAcademy_76.gif

    New information on the price chart

    The idea of the fifth dimension:

    • Buyers are weaker on the "b" bar in comparison to the "a" bar. It proves that the "b" bar's high is lower than the "a" bar's high.
    • Why are sellers stronger on the "b" bar? The reason for this is that new information came to the market (on the picture it is shown as a dashed square) and changed the balance.
    • If buyers become stronger and raise the market (refer to the "c" bar) to the "a" bar's high, this means that the market balance is changing and it may be a first signal to make a deal within the fifth dimension.

    Bar "b" is the base bar:

    • Base bar for a signal to buy is the most recent bar whose high is lower than the preceding bar's high ("b" bar in the figure above). It may be the current bar; for example, "b" bar when there is no "c" bar yet.
    • Base bar for a signal to sell is the most recent bar whose low is higher than the preceding bar's low (it may be the current bar).

    The first three principles of Balance Line trades:

    • 1) Read the chart from right to left.
    • 2) If you are waiting for a buy signal, look at the highs only. If you are waiting for a sell signal, look at the bottoms only.
    • 3) Establish the base bar first (as described above).

    If you have found a base bar for a buy or sell signal then you are halfway to making a deal within the fifth dimension.

    It should be noted that you shouldn't open positions using signals from the 2-5 dimensions before the first signal is generated when the first fractal is triggered. Also, you should only use signals that are in the same direction of the first signal.

    Buy Signal Above the Balance Line

    If the price is above the Balance Line and you wait for a signal to buy, then you expect that the price will move away from the Balance Line (go "downhill").

    Principle 4:

    • 4) if you move away from the Balance Line then you need one more new high (low) to buy (sell). If instead, you move towards the Balance Line, then you need two new highs (lows).

    AlpariAcademy_77.gif

    Buy signal above the Balance Line

    Following this principle, for a buy signal you need to wait for the price to rise above the high of the closest preceding bar whose top is higher than that of the base bar:

    Let's assume that on the price chart you see bar "1" and all the preceding bars. Hence, you cannot see bars "2", "3", "4" etc yet. At this point, bar "1" can be defined as the base bar for a signal to buy as it is the most recent bar whose high is lower than that of the preceding bar.

    The main principle of the Buy signal above the Balance Line is that a Buy Stop order has to be placed 1 tick above the high of the bar that precedes the base bar (in our case it is bar "1").

    Bar "2" occurs on the chart with the high that is lower than that of bar "1"; so, bar "2" becomes the base bar. The Pending order has to be deleted and a new Buy Stop must be placed 1 tick above the top of bar "1" (the bar that precedes the base bar "2"). The same happens on bar "3" and bar "B". Once bar "B" has appeared it becomes the base bar, and the pending order has to be placed 1 tick above the high of bar "3".

    After that bar "4" occurs, but bar "B" is still the base bar, i.e. if you read from right to left, this bar is the first with the high lower than that of the preceding bar. The high of bar "4" is lower than the pending order, so you are not in the market yet. Bar "5" occurs, the base bar remains the same and the pending order is not triggered. But then bar "6" appears and its top is higher then that of the bar which precedes the base bar, so your Buy Stop is triggered and you enter the market following the Buy signal above the Balance Line.

    Buy Signal Below the Balance Line

    Obviously, if you buy below the Balance Line you hope that the price will move closer to the Balance Line (go "uphill"). Remember principle 4:

    • 4) If you move away from the Balance Line then you need one more new high (low) to buy (sell). If instead, you move towards the Balance Line, then you need two new highs (lows).

    This means that you need two highs to get the Buy signal below the Balance Line:

    AlpariAcademy_78.gif

    Buy signal below the Balance Line

    If bar "B" occurs it becomes the base bar, as it is the first bar whose high is lower than that of the preceding bar if you read the chart from right to left. In order to generate a Buy signal below the Balance Line you need two highs to the left of bar B. The first of these is bar "3". Bar "2" will not meet our requirements, as its high is lower that of bar "3". Bar "1" is the second high you are looking for because its high is above than that of bar "3". That is why you must place a Buy Stop 1 tick above the high of bar "1".

    When bar "4" occurs nothing changes: the base bar is still bar "B" and the pending order has not been triggered. Bar "5" changes nothing again. When bar "6" occurs the pending order is triggered and the Buy signal below the Balance Line is generated.

     

    Sell Signal Below the Balance Line

    Sell signal below the Balance Line has the same principles as the Buy signal above the Balance Line. In both cases you hope that the price will move away form the Balance Line. Following principle 4 (described above) you need to have one low to generate a signal.

    Let's assume that on the price chart you see bar "B" and all the preceding bars. If you read the chart from right to left, then bar "B" is the base bar, i.e. the most recent bar whose bottom is higher than that of the preceding bar. As you only need one lower bottom you can place a Sell Stop order 1 tick below the low of bar "1". Nothing changes when bar "2" occurs: bar "B" is still the base bar and the pending order has not been triggered. Bar "3" also does not change the situation.

    You should remember that if any of the subsequent bars (before Sell Stop is triggered) becomes the base bar, the previous signal has to be ignored, and the previously placed pending order has to be deleted. In our case, this has not happened yet. When bar "4" occurs, the pending order is triggered and the Sell signal below the Balance Line is generated.

     

    Sell Signal Above the Balance Line

    Sell signal above the Balance Line has the same principles as Buy signal below the Balance Line:

    Sell signal above the Balance Line

    In both cases you hope that the price will move towards the Balance Line (go "uphill"). Following principle 4, you need to have two lows to generate a signal.

    Let's assume that on the chart you see bar "2" and all the preceding bars. Bar "2" is considered to be the base bar, i.e. it is the first bar (if you read the chart from right to left) whose bottom is higher than that of the preceding bar. As the price tends to move towards the Balance Line, you need to find two lows to generate a signal:

    • First bar right to left, whose bottom is lower than that of the base bar. This is bar "1".
    • First bar right to left, whose bottom is lower than that of the bar "1". This is bar "0".

    This is why after bar "2" appears, you should place a Sell Stop order 1 tick below the bottom of bar "0". When bars "3" and "4" occur nothing changes: bar "2" keeps the status of the base bar and the pending order has not been triggered yet.

    Once bar "B" appears:

    • It becomes the base bar and the pending order, placed 1 tick below bar "0", has to be deleted.
    • A new Sell Stop order has to be placed 1 tick below the bottom of bar "1" (the bottom of bar "4" is lower than the bottom of the base bar "B", and the bottom of bar "1" is lower than the bottom of bar "4").
    • The pending order will be triggered on bar "6" and the Sell signal above the Balance Line is generated.

    No matter what signal is created you must ignore it until the first fractal buy or sell signal is triggered outside the Alligator's mouth.
    You should ignore signals which are not in the same direction as the first signal generated from fractal.

    For all the signals of the fifth dimension there are two principles which will help you recognize false signals:

    • Never sell above or buy below Alligator's mouth.
    • If the current bar is in the Red or Green Zone (refer to the "Trading in the Zone" page), double the number of new higher tops (lower bottoms) that are required to create a buy (sell) signal
  • jaguar1637 3274 days ago

    Exit the Market

    How to place Stop Loss orders

    Bill Williams gives his recommendations in relation to Stop Loss orders

    • If on the opening the market is trending, then it is better to close positions if the bar's closing price crosses the Alligator's teeth (the red line).
    • If the market is volatile, use the Alligator's Lips (the green line) as the level to place a Stop Loss order. The market is characterised as volatile when the prices angle of inclination is more than that of the green line. In both the above cases, at the end of the current bar the Stop Loss is shifted to the level of the red or green line of the next bar.
    • Once the fifth histogram bar occurs in the Green Zone (Red Zone) place the Stop Loss (refer to the "Trading in the Zone" page).
    • Close all open positions if a signal in the opposite direction appears. Bullish divergence / bearish convergence between the Awesome Oscillator and the price signals that the trend is about to end:

    AlpariAcademy_81.gif

    Divergence between the price and the Awesome Oscillator is the signal that the current trend is weak

  • jaguar1637 3274 days ago

    Market Facilitation Index (BW MFI)

    Market Facilitation Index (BW MFI) analyses the amount the price changes for each 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 - volume of the current bar.

    Market Facilitation Index (BW MFI)

    In order to add it use the "Insert -> Indicators -> Bill Williams -> Market Facilitation Index" menu sequence.


    Market Facilitation Index (BW MFI) signals:

    • When both BW MFI and Volume rise at the same time, it means that the market is moving primarily in one direction and that more people are participating in the market. It is a good time to already be in the market.
    • When both BW MFI and Volume decrease at the same time, it means that traders' interest starts to fade. Often it occurs toward the end of the trend.
    • When BW MFI is pointing higher and Volume is pointing lower, it means that the market primarily moves in one direction but there are no new participants to generate higher volume. Price movements are the result of speculation.
    • When both BW MFI goes down and Volume goes up, it means that there is a battle between bulls and bears (large volume) and their forces are almost equal (the price does not change significantly). This typically occurs prior to a significant move in the opposite direction. Close attention should be paid to the direction that the price moves when breaking out of this slowdown. Bill Williams called this a squat bar.


    In MetaTrader 4 all these Market Facilitation Index changes can be of different colors:

    AlpariAcademy_83.gif

     

  • jaguar1637 3274 days ago

    I am not convinced by this method

    The main idea is good , not sure about the development

  • JohnLast 3273 days ago

    The method is historical and has a historical value. What really counts is the ability by Bill Williams to explain the technical analysis to new traders. He is a real top master in that aspect.

    However we should take into account that those methods were never expected to be used in Forex. They were designed for the equity market many years ago.

    So some 30 years ago the MACD was the top of the research.

    So once upon a time this stuff was on the top of the technical research. It was using the best available instruments at that time the MACD and machine optimization by the so called "Main frame", computers.

    By Machine optimization Bill Williams found that the settings  for MACD work very well for divergence trading for Elliott waves trading. See this internal link for more details.

    Slow 34-period simple moving average, plotted through the middle points of the bars (H+L)/2, 

    Fast the 5-period simple moving average, built across the central points of the bars (H+L)/2

    This was the profitunity MACD 5-34-5 see page. 111 from the original Book Trading Chaos first ed.


    Later in in the second book (New Trading Dimensions) it was used simple moving average with 5 and 34 (to make somewhat different) and that was called the Awesome Oscillator ( see page 55 in the book New Trading Dimensions by Bill Williams).

    As it was mentionned the settings were found using a machine optimization completely unavailable for the ordinary trader at that time, and that was the top gun research.

    That makes some people smile by now but even the computarized bars (that we consider now for granted) were considered a top research and they were condsidered to give an edge.

    Even today the profitunity Trading group is number 1 in the Stocks and Commodities Trading Systems selection: 

    You can check this stuff explained into nice videos with some additional information and market hints, you can get for the cost of 3000 USD. That is the Home Study course.

    And of course as a matter of indicators there is not anything that has not been coded for Metatrader.

     

  • JohnLast 3273 days ago

    Critical appreciation

    As it is indicated in the Stocks and Commodities site this is a discretionary trading system.

    The say also that:

    Because this is not a black box system, it is difficult to backtest. Results will vary based on the individual trader. The average ROI is 10% monthly.

    I can agree that it is difficult to back-test but 10 % ROI monthly it is a little bit over exagerated. That makes 120 % per year and nobody in the professional business makes that much. Just because the risks involved with that are inconsistent with the institutionnal trading (as much as far as I know).

    So this is primerely targeted for relatively wealthy Nord Americans with interestis in the equity market.

     

    Reading Bill williams you will find that he behaves more as a guru than as a real trader, imposing an simplistic easy to understand model of the world and using somewhat an ersatz Chaos Theory.

    The idea is that the reader get an inner response: Jeeze that is not so hard, I will get rich in an year.

    The next phase is that those 3000 USD look nothing compeared to the way of the riches you expect following his more intimate insights in the private course.

    The guy looks at the sight of Stocks and Commodities and this appears as the best available trading system. So the choice is made. 

    That is the way the buseness model turns.

    They they sponsor Stocks and Commodities and the Stocks and commodities name them as the best trading system. You do not believe that but please comme on look at the first page who are the sponsors.

    They sponsors dp sponsor the Stocks and Commodities and  Stocks and Commodities  name them as the best: traidng systems, softwares etc.

    Check here: and look at the right.

     

    Maybe you will find me a little harsh, but those looosing their account using "à la lettre" his methods know better.

     

    On the other hand this is a very well documented discretionary system. And of course Bill Williams has a major contribution in the Elliott wave analysis.

    And even more he has a real talent to explain things easily. 

    From trading perspective the system is designed with the old equity markets in mind (slow and consistent trends with not that much volatility)


    This is a trend following system:

    The system is designed to keep you out of choppy and flat markets: This is the alligator filter.

    There is a good price action system: the fractals:

    The system tracks the volatility: the alligator

    So basically whenever you will have a nice trend the system will perform nicely.

     

    The system will have problems  whnever it faces bigger volatility. 


  • JohnLast 3273 days ago

    And despite the critical appreciation, even today there is not anything better written about the practical use of indicators in an discretionary approach (I do not mean that it is the best but that there is nothing really and substantionally superior).

    What is the most intresting is the practical use and the synergy between tools.

    Well on the other hand who am I to discuss prices and courses, everything has its price submitted to the law of supply and demand.

    The idea here is to warn you not to have overly optimistic expectations about this stuff and most of all Do not bet your house on this and everything else ;).