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Trading Chaos?

  • #1
  • First Post: Jun 13, 2007 3:42pm Jun 13, 2007 3:42pm
Anyone read this? I have been through a enough books to build a fort around my work station at home.

I came across this book a few times but never thought to reading it. Anyone recommend it? I will probably end up buying it anyway just though I would get a few opinions.
  • #2
  • Jun 13, 2007 3:55pm Jun 13, 2007 3:55pm
Quoting Sniper
Anyone read this? I have been through a enough books to build a fort around my work station at home.

I came across this book a few times but never thought to reading it. Anyone recommend it? I will probably end up buying it anyway just though I would get a few opinions.
There is a thread going on this.

You might want to look at it before you buy the book.

http://www.forexfactory.com/showthread.php?t=26044
  • #3
  • Jun 13, 2007 3:56pm Jun 13, 2007 3:56pm
Quoting Sniper
Anyone read this? I have been through a enough books to build a fort around my work station at home.

I came across this book a few times but never thought to reading it. Anyone recommend it? I will probably end up buying it anyway just though I would get a few opinions.
If you are talking about Bill Williams' book Trading Chaos(2nd edition); yes I have. I have also read his New Trading Dimensions and I am waiting on his 1st edition Trading Chaos as we speak. I really enjoyed reading them and can't wait for the 1st edition to arrive. I personally recommend them highly but as with anything some like, some don't. Different strokes for different folks....
  • #4
  • Jun 13, 2007 4:09pm Jun 13, 2007 4:09pm
I would recommend this book. It is a bit basic, but has some very good and precise information in it... It is an easy read. I think it was about 250 pages is all.

I am not much of an Elliot theorist, but he did quantify a useful method for determining the waves, that if I were interested in EW would be very helpful.
  • #5
  • Jun 13, 2007 4:11pm Jun 13, 2007 4:11pm
Quoting smjones
I would recommend this book. It is a bit basic, but has some very good and precise information in it... It is an easy read. I think it was about 250 pages is all.
215

haha I bought it before I check the thread thanks for link and feed back.
  • #6
  • Dec 14, 2007 2:43am Dec 14, 2007 2:43am
Hello Master Trader,,,I'm Confused with Market...if I'm enter the market with position Buy the market it's Fall n when I'm Selling the Market it's Raising...How to make Proffit with wrong Position in market.with low Margin...I want to greatest Indicator..can help me!!

regards


[email protected]
  • #7
  • Dec 14, 2007 6:26am Dec 14, 2007 6:26am
bill william's system is very good for multiple entries on a pair. you buy or sell in steps in a trend and thus for example instead of making 200 pips you can make 300 pips. i recommend it. you don't have to adopt his system(i haven't fully) but it can be helpful
Twitter: @forexpokerpro
  • #8
  • Dec 15, 2007 4:43pm Dec 15, 2007 4:43pm
Sniper, I would recommend reading Trading Choas as well as New Trading Dimensions by the same author. New Trading Dimensions in my opinion is the better of the two. The trading system discussed is easy to understand and extremely powerful when used correctly. The system works best on a Daily, Weekly, or Monthly chart. I have used it on a 4-hour chart at times though.

Trading successfully is a matter of controlling one's emotions (fear & greed) and finding a trading strategy that you are willing to commit to. One must focus on that trading system and refrain from jumping to every new system they hear of. One must understand that the market place is a live and breathing entity. The market does not move in a straight line, but actually moves in a direction for a while then consolidates. This is because every candle will make a high and low during that specific timeframe. A Daily candle will construct the high/low over the course of the day. A 1-hour candle will do the same over the course of each hour.

When this is understood a trader is less fearful when the price moves and consolidate against their entry price. They are aware of the direction of the TREND. They will allow the trade to grow over the next couple of days or longer rather than jump out of the trade when it goes against them. Trading with the Daily chart or higher will provide traders with a good amount of information concerning price action. A 1-hour chart can not provide as much information about price action or the trend. The chart is to small to effectively read the waves. Price action changes all the time and when positive waves on a 1-hour chart turn to negative waves, resulting in a reversal of price, it is very hard to see when that happens.

The cycles are much larger on a Daily chart and provides for larger pip profits than a 1-hour chart. As an example the cycle on the EURUSD Daily is approximately 1700 pips. The cycle on an hourly chart is about 200-300 pips.
The Alligator trading system can help you to extract these larger cycles more safely than a 1-hour chart can. So I say all of this to say--yes I would very much recommend you read New Trading Dimensions first, then Trading Choas second. Paper trade the system until you have a firm understanding, then go make some serious pips. By the way--the system is as easy as he explains in the book. It took me a while to understand that. I continued to analyse the system as though I were using other technical indicators. I kept telling myself, "It can't be this simple, there must be more to it". I was wrong--it is that simple. This is the only trading system I use now. I have been trading the Forex for three years and have found this to be the best system I have used. I have used this system for 2 years now.

Anyway this is simply my opinion. Just wanted to reply to your question. Happy pip hunting.
  • #9
  • Jan 11, 2008 2:05am Jan 11, 2008 2:05am
Quote
his is the only trading system I use now. I have been trading the Forex for three years and have found this to be the best system I have used. I have used this system for 2 years now.
well its obviously working for you. I am trying to make some sense of the system and I had come to the conclusion it was a late entry trend trading method and dismissed it. I was wondering if you could quantify in terms of no of trades, win/loss ratio, average win, average loss for a 12mnth period. The threads on here seem to make it out to be very complex and direct you to mentors with paypal. Any information or advice you could offer would be appreciated
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  • #10
  • Jan 11, 2008 9:13am Jan 11, 2008 9:13am
Hi,

I just wanted to add my support of this system. I am trading a variation of this system which is taught by a guy named Cecil Robles, who makes it a little more specific to forex, but basically it's the same method. I have been trading forex for almost four years and this is the first thing that has consistently worked for me.

I agree that the system does maximize your profit potential by adding to your winning positions. I began live trading of this at the end of October 2007, and racked up over 2000 pips from then until the end of the year, that mostly trading the 4 hour chart.

I don't have live results to share, but I have done some backtesting of this on the 4 hour. For example, over the first six months of 2007, this is what I came up with for the GBP/USD.

Trades---- 49
Winners--- 20
Losers---- 29
Winning % 40.8%
Avg. win--- 522
Avg. loss-- 173
Avg. per tr. 110.59

Net profit-- 5,419


The numbers for the GBP/JPY were even more eye popping, and a basket of four pairs, GU, GJ, EU, and UJ produced 18,000 for the six month period. I note with interest the fact that the W/L ratio is only 40%. I used to be really hung up on finding a system with a high winning percentage, but when I see this in action I couldn't care less. This system seems to do what we're all taught to do but find so hard to put in action; control your losses and let your winners run. Keep in mind that this backtest took every signal that came along, with no thought given to time of day/week, news events, holidays, etc. I have found in my forward (live) testing that I am experiencing over 50% winners since I am being more selective. But what my testing indicates is that you could trade this 100% mechanically and still be very sucessful. In any case, the backtest is valuable in a number of ways to me, but hopefully gives you an idea of what this sytem can do.

By the way, I haven't read all of Bill Williams' books yet, just Trading Chaos the second edition. I'm looking forward to reading the others.


Cheers,
Richard
  • #11
  • Edited 10:14pm Jan 11, 2008 10:12pm | Edited 10:14pm
The Choas trading system is not a late entry trading system. Matter of fact if you learn the signals for the AO, AC, Balance Line, and rules of the Alligator, you will find that it can put you in trades at the early part of the move. It will also keep you out of range bound (no-where) markets. The trading system works on all timeframes, but I perfer to use the 4-hour, Daily, Weekly, and Monthly charts. I'm a position/longterm trader. The key is to carefully read the book, New Trading Dimensions, and put up recent charts on your trading platform to find examples of the signals as you go through each chapter. Once you have internalized the signals you will see entry and exit points very clearly. It takes time to learn any trading system and that's were traders make their mistake--they give up to quickly. I hope this helps you out. I self-taught myself from the book and quickly realized there are secrets to the AO and AC. Bill mentions this fact in his book. It took a while, but I learned many of them over time. Unfortunately I do not consult or teach trading strategies. So again, read the book and find examples on recent charts on your trading platform.
  • #12
  • Jan 12, 2008 12:54am Jan 12, 2008 12:54am
Thankyou reoking

My interest in this system is stirring after hearing of your success. I downloaded a Bill Williams seminar but it does seem like he went to an awful lot of trouble to come up with what appears to be a simple swing point breakout system using an ma cross filter and oscillator based signal triggers. It looks to me like he took years to "reinvent the wheel." when all he really did was re -describe it using chaos theory jargon. The books are over $100 each (AUD) so I am going to do a little more research before I give this guy that sort of money for a book. Thats where I am at at the moment with the information I have. I am probably missing something and any further insights you can provide would be appreciated
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  • #13
  • Jan 12, 2008 1:11am Jan 12, 2008 1:11am
Quote
Trades---- 49
Winners--- 20
Losers---- 29
Winning % 40.8%
Avg. win--- 522
Avg. loss-- 173
Avg. per tr. 110.59

Net profit-- 5,419

great work Richard. Now that is inspiring. I have already come to the conclusion that a trending system with pyramiding is the best technique. I have no issue with a low win rate. The backtest figures above is running at a profit factor of 2. Is the system a rehashed swing break as I described in the previous post or is there something else worth learning about that is exclusive to chaos theory trading?
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  • #14
  • Edited 10:41am Jan 14, 2008 9:39am | Edited 10:41am
To say that this is a rehashed breakout system would be a vast oversimplification, but in all fairness part of the system does rely on fractal break entries, and fractals are really just swing highs and lows. However, there are certain filters regarding fractal entries which make it more effective. Also, there is another trade in the system designed to catch a reversal move quite early which has nothing to do with breakouts.

I used to trade a popular and effective method documented here on FF (Phillip Nel's 4 Hour) which was a rhythm and flow type of system, and I would mention to others on that forum that I "hated to trade breakouts". The truth is, I hated the way I had previously been taught to trade them.

Every system has it's flaws. In this one, the problem seems to be when the market is ranging you will incur some losses. The key is, the losses are relatively small, and when the trend resumes you clean up. The more I learn about trading, the more I understand it's about managing your losses. There are two ways to do that as I see it. Either have a system that has many more winners than losers, or a system that keeps the losers small and catches the big move. This system is the latter, and it suits my personality and temperment well.

I recommend a further look. There's no question in my mind that it works. The only question for each individual trader is, does it fit me and my personality? Best of luck to you.

Edit:
Since I mentioned managing losses, I thought I should include these numbers from my backtest of the GBP/USD

Greatest Continuous Drawdown---- 1,329
Greatest Overall Drawdown-------- 1,922

Knowing these numbers is critical to understanding your risk management.

Cheers,
Richard
  • #15
  • Jan 14, 2008 10:04am Jan 14, 2008 10:04am
Quoting reoking
The Choas trading system is not a late entry trading system. Matter of fact if you learn the signals for the AO, AC, Balance Line, and rules of the Alligator, you will find that it can put you in trades at the early part of the move. It will also keep you out of range bound (no-where) markets. The trading system works on all timeframes, but I perfer to use the 4-hour, Daily, Weekly, and Monthly charts. I'm a position/longterm trader. The key is to carefully read the book, New Trading Dimensions, and put up recent charts on your trading platform to find examples of the signals as you go through each chapter. Once you have internalized the signals you will see entry and exit points very clearly. It takes time to learn any trading system and that's were traders make their mistake--they give up to quickly. I hope this helps you out. I self-taught myself from the book and quickly realized there are secrets to the AO and AC. Bill mentions this fact in his book. It took a while, but I learned many of them over time. Unfortunately I do not consult or teach trading strategies. So again, read the book and find examples on recent charts on your trading platform.
It's great to see that you too are having success with this. It seems that you are somewhat farther along in this, particulary with regard to your understanding of the use of the AO and AC indicators. I am just finishing the second edition of Trading Chaos, and based on your experience I think I'll go ahead and read New Trading Dimensions as well. By the way, am I right that the first edition of Trading Chaos addresses Elliot Waves a bit more? The second edition mentions them briefly but no detail at all. Thanks for your insight and input.


Cheers,
Richard
  • #16
  • Jan 16, 2008 8:35pm Jan 16, 2008 8:35pm
thanks for replying Richard
I will continue researching this method. I have the systems entry and exit signals and all the indicators needed. Perhaps later if anyone is interested we could start a thread teaching the method and posting results.
Quote
Greatest Overall Drawdown-------- 1,922
would you mind telling us what the recovery attained? a 1922 pip draw down is pretty significant so the risk per trade would need to be kept very low. This would significantly reduce returns.The system would need to offset this with very substantial gains
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  • #17
  • Jan 16, 2008 11:13pm Jan 16, 2008 11:13pm
The way I ran the backtests was based on entry using a 3% margin of a $10,000 account at 100:1 leverage. For the sake of testing simplicity, I just made the assumption that 3 mini lots would be used to enter, then 2 lots would be added for each new signal as the trade progressed, and that the results would be reported as 1 pip per lot. It should be noted that the risk (stoploss) involved in each trade varied. However, because of the dynamic nature of the stop placement, it is difficult to determine the actual percentage risk. What I mean is, the initial stoploss on a trade might be 250 pips, which x 3 lots would be $750, or 7.5% of a $10,000 acccount. But the initial stop was rarely hit, because even on a losing trade the stops were trailed, so what it comes down to is how you want to calculate your 'risk' in a trade. That's why the drawdown figures are particularly important to this system. That may be the best way to determine your real risk in terms of account size. For me, a 19.2% max drawdown is acceptable if, as in this test, it results in a 54% increase in six months.

Also to be remembered, this test was taken strictly by the book, with no discretion. My live trading over the past couple of months has produced a much higher winning percentage. I should, but I don't have the numbers from my live trading. I'll work them up and let you know how they came out.

I hope what I'm saying here makes sense. It been a long day so my thinking may be fuzzy but I wanted to answer right away. My trading has turned around as a result of chaos but also from beginning to understand money management, but I still don't have full understanding, so feel free to critique my thinking here.


Cheers,
Richard
  • #18
  • Jan 23, 2008 11:06am Jan 23, 2008 11:06am
Hi again,

I wanted to give the numbers on my live trading of chaos. This info includes trades executed from the end of October 2007, which is when I began trading this live, up till today. Once again, calculations are based on one pip per lot per trade, so as to illustrate the power of this system. During this time eight different pairs were traded. Also, most of these trades were taken off of a 4 hour chart, but some made use of a 15 minute time frame. I don't have an exact breakdown of which are which, but the 4 hour was much more profitable.

Total trades------ 19
Winners---------- 14
Losers----------- 5
Winning %------- 73.7%
Avg. win--------- 279
Avg. loss--------- 126
Avg. per trade--- 172.53
Greatest DD------ 270

Total pips-------- 3,278


Once again, a risk to reward ratio is difficult to pin down on this system because of the dynamic nature of the stops, and since the initial stop loss is so rarely hit I haven't even calculated it.

Anyway, the results are there to be had. I haven't done as much trading as I would like, paticularly since the first of the year, but it's clear that being more selective pays off in terms of W/L % versus the backtest 'take every trade' mindset. I would like to strike a balance between the two though. What I need to do is analyze the backtest results more carefully and see if I can determine what set ups are higher percentage than others. The thing is, just strictly taking all the signals ensures that you will catch all of the unexpected moves that sometimes result in big profits.

If any of you have some thoughts on this please speak up. In the meantime, I'll continue to trade and study this further.


Cheers,
Richard
  • #19
  • Jan 23, 2008 10:46pm Jan 23, 2008 10:46pm
I understand you. I think your thinking is acceptable. You are trading high risk but your system seems to warrant it. The trailing stop reduces the risk at any movement in your favor. Consequetive maximum stop loss hits are unlikely and your results certainly bear this out. There is some confusion regarding different versions of the system from the different books. Where can I find the exact method that you trade. Are your results reproducible by others following the rules you employ or are there other factors contributing to your success.
Thankyou for your time - very much appreciated
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  • #20
  • Edited 9:32am Jan 24, 2008 9:21am | Edited 9:32am
Quoting M.A.C.Doug
I understand you. I think your thinking is acceptable. You are trading high risk but your system seems to warrant it. The trailing stop reduces the risk at any movement in your favor. Consequetive maximum stop loss hits are unlikely and your results certainly bear this out. There is some confusion regarding different versions of the system from the different books. Where can I find the exact method that you trade. Are your results reproducible by others following the rules you employ or are there other factors contributing to your success.
Thankyou for your time - very much appreciated
The exact system I am trading can be found at xxxxxxxxxx. However, the materials are not available right now as they are revamping the course. I have no interest in or am in no way affiliated with them, but I have learned a lot from them. You may be put off by the more than $1,000 price on the course, but it might be worth it to you if you need "hand holding" like I did. Frankly, it doesn't sound like you need it, so you might be just as well served reading the books by Bill Williams. Reoking seems to have done just that and done so successfully. It sounds like he put in some hard work studying the method, but it obviously has paid off for him. The truth is, it's virtually the same system I am using. The difference is the way it is taught. There are other aspects of what xxxxxxxx teaches with regard to day trading, news trading, and the like which are specific to forex that may or may not be of interest to you. All the trades and tests that I have posted here are based on the system that Bill Williams teaches.

Otherwise, I don't really consider this to be high risk trading at all. I guess it's a function of how many lots you trade compared to your account size and stop loss. Notice in my recent live trading, the biggest drawdown I had was 270 pips. As a percentage of my account, I had traded that with a stop that provided a risk of loss on the trade of about 2% of my account. I rarely at this point in my trading carreer ever risk more that 2%, but I may begin to move that up as I become more proficient in the system. Right now I am in a trade that actually has less than 2% risk to the stop loss. It's all in how you adjust your lot size. With many brokers now providing accounts that trade in less than mini (10,000) lots, it's much easier to make the adjustment if you have a smaller account.

By the way, these results are absolutely reproducable. I have been only moderately successful until the past several months of trading this system. All of a sudden, I began to understand the things that people had been trying to get across to me before; things regarding risk/money management, consistently trading your system, controlling your emotions, etc. As a note; my emotions got a lot more under control when I became a serious backtester. When I began to understand that success is not achieved by looking at your most recent trade, it comes by looking at the bottom line over an extended period, and systematically backtesting proved this to me.

I hope this is helpful to you.

Cheers,
Richard

Edit: After initially posting this message, I determined that I may have been in violation of forum rules regarding promotion of commercially marketed forex material. As such, I have removed the name and web address of the company to which I am referring. Although I have no affiliation with said (or not said!)company, my mention of them could have been construed as promotion.
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