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Profitunity (Chaos) Trading System by Bill Williams

  • #181
  • Jun 15, 2007 10:34am Jun 15, 2007 10:34am
hi isto... nice thread you have here. I'm still confused with buy/sell fractals... from my understanding the buy fractal is valid once it's above the gator teeth (middle line) right? but somehow i did read your comments to one of the member here, you're saying above alligator... do you mean above the jaws (or below the gator lips for sell fractal)?

thanks in advance!
Be a sniper not a jumper
  • #182
  • Jun 15, 2007 3:08pm Jun 15, 2007 3:08pm
Quoting sierra
hi isto... nice thread you have here. I'm still confused with buy/sell fractals... from my understanding the buy fractal is valid once it's above the gator teeth (middle line) right? but somehow i did read your comments to one of the member here, you're saying above alligator... do you mean above the jaws (or below the gator lips for sell fractal)?

thanks in advance!
Right - original version is buy fractal is valid when the price at the moment it is taken is above the red line. (Quote is by heart and is not exact...)

But...

If you browse your charts you certanly will note that there are as many false buy fractals above the red line as there are buy fractals giving the start of profitable trade.

My personal belief is that, especially when lines are intertweening or have been intertweened - let say - about 10 sessions back, there is high probability the first (even first several) fractal(s) to be false signal(s).

I analyse each situation separately and do not have a clue about...

In general false signals apear often and it is hard to weed them out.

I'll appreciate comments about this (false signals) if somebody has idea(s) and would be kind enough to share them with us...
  • #183
  • Jun 16, 2007 6:21am Jun 16, 2007 6:21am
thanks isto... yup i agree with you regarding the false signal that might get triggered if you just take the gator teeth as your ref point for buy/sell fractals... i personally use gator lip and jaw to determine my buy/sell post...however i still hit by stop loss... another thing what's your method to determine your stop loss? do you refer to the pink line value as your stop loss at the point (above or below) fractals?
Be a sniper not a jumper
  • #184
  • Jun 17, 2007 1:21am Jun 17, 2007 1:21am
Quoting sierra
thanks isto... yup i agree with you regarding the false signal that might get triggered if you just take the gator teeth as your ref point for buy/sell fractals... i personally use gator lip and jaw to determine my buy/sell post...however i still hit by stop loss... another thing what's your method to determine your stop loss? do you refer to the pink line value as your stop loss at the point (above or below) fractals?
Hi sierra,

well stop positioning is another complicated stuff - it depensds on lot's of factors...

I use few diffenet stop loss placing rules. Generaly I put them away so as to avoid accident hits. I use them as a last firewall, i.e. I prefer to exit trades manually if they do not develop as expected.

One of the main point to detemine stoploss is the pair itself - it is useless to set same stop loss (i.e. 5, 50, 150 pips) on EURUSD and EURAUD for exapmle (this is only my point of view of caurse)

Another one is the picture from upper time trames - I use one type of stop loss at the beginning of the move, another after trend is clear enough and still another when Allicator starts closing its mouth...

In one word - I stop loss placement depends on the current market picture.
  • #185
  • Jun 18, 2007 2:47am Jun 18, 2007 2:47am
After the nice trade EURUSD offered on Friday (look here), today it offers a new Bearish Divergent Bar setup - read more here

Another interested setup has been formed on ERUCAD H4 chart, but similar though it is more dangerous that this one - read here
Attached Image
  • #186
  • Jun 18, 2007 7:52am Jun 18, 2007 7:52am
Bearish Divergent bar described on post #185 has been completely blown out.

Development of the trade is available here.
  • #187
  • Jun 18, 2007 10:06am Jun 18, 2007 10:06am
This is the end of Bullish Divergent Bar trade on EURUSD H4 today.
(Read beginning of the story here, here and here)

Inserted Code
[b]DateSignalPriceSLP/L$lots:[/b]
15.6.2007 16:00F1.33441.33990.00555501
15.6.2007 20:37Z1.33861.33990.00131301
18.6.2007 09:45BL1.33991.33990.000001

Total:[b]680[/b]

From here on there are two options:

  1. Bearish Divergent Bar - short entry - because of the second DBar attempt, acceptable angle and Acceleration slow
  2. Balance Line - long entry - because the bulls might be more powerful that expected...

Attached Image
  • #188
  • Edited 2:38am Jun 19, 2007 2:38am | Edited 2:38am
New Bearish Divergent Bar is formed today.
The angle is closing and becomes less and less acute. There is still an option to make some retrace (probable retrace levels are marked in red)

Keep your eyes open for this might turn an outer bar and up move might sprike surprisingly. Daily chart is still intacked and we have there 3 green AO bars meaning that momentum is still up...

let's see

meanwhile yesterday long trade of the break of 2nd Bearish Divergent Bar closed with small profit.

Inserted Code
[b]DateSignalPriceSLP/L$lots:[/b]
19.6.2007 03:12BL1.34211.34260.0005501

[b]Total:50[/b]
Attached Image
  • #189
  • Jun 19, 2007 4:14am Jun 19, 2007 4:14am
Hello everyone (and isto),

isto - you asked if anyone had any input with regard to false signals.

Well - here is my trillion dollars worth:

I started using this system last Monday (after I had had a hard time trying to understand the fractal signals) and I can honestly say that apart from the first day (last Monday) that I started using this system I have made consistent net profit every single day since using this system.

Like I said before - I am a firm believer in anything Bill Williams and J. Welles Wilder but I could never get my head around the fractal thing until last week (thanks to incorrect information in my charts manual - and yes - isto - the charts manual that I have is indeed incorrect - but that's of no consequence now anyway)!

Anyway - as far as false fractal signals are concerned - I have had a look at the weekly and daily charts of the instruments that I normally trade i.e. DAX 30, Dow, Nasdaq 100, S&P 500, MSCI Taiwan, Hang Seng Index, Nikkei 225, Gold, Silver, Crude Oil, and the SP500 (ASX) and I have found that yes there may be false signals EVEN when buying above the alligators lips or selling below the alligators jaw BUT the profitable trades BY FAR outweigh the losing trades AS LONG AS YOU USE STOPS - and that is the key here. In my opinion this is the 'Holy Grail' of trading systems (at least for me) BUT money management will make or break this system.

So far - I have followed the system 'to the letter' - but with the instruments that I trade - it appears that if I 'break the rules' just slightly i.e. buying or selling as soon as a buy or sell fractal appears close to the alligator's teeth (and not necessarily when the fractals appear on the right side of the teeth either) profits are maximized even with small losses.

As a matter of fact - on long term trades - I reckon you could get away without the alligator i.e. open an order for all and every single fractal that appears (obviously removing the previous order when a new fractal appears) although I know that this is diverging from the overall purpose and theme of this system i.e. to keep you in a trend and stay in for as long as possible.

I have attached a graph to demonstrate what I mean (it is the weekly chart for the DAX 30).

You'll note that I have taken the fractal signals regardless of whether or not they are on the right side of the teeth i.e. as long as they are close to the teeth no problem.

The DAX 30 is probably a bad example to demonstrate false signals because it trends most of the time but even in a ranging market this system works for the simple reason that unless there is a breakout from the range you are not actually in the market until the breakout happens so although you may have to wait some time for this happen when it does you're good to go.

I find my biggest problem with this system is when to take profit i.e. although I am doing fantastic with this system I tend to take profit far too early and Mr Williams does not seem to cover this too well although if the truth be told I am still developing trust in the system and I reckon once you have developed this trust and confidence and are prepared to see the trade through to its end based on the alligator then everything is good!

Regards,

Dale.
Attached Image (click to enlarge)
Click to Enlarge Name: dax 30 weekly.jpg Size: 113 KB
  • #190
  • Jun 19, 2007 4:41am Jun 19, 2007 4:41am
Quoting fintrans
....

I started using this system last Monday (after I had had a hard time trying to understand the fractal signals) and I can honestly say that apart from the first day (last Monday) that I started using this system I have made consistent net profit every single day since using this system.

....(full text of the post is here)
Hello Dale

thanks for sharing your point of view.

Would you please rearrange your chart adding arrows showing buy/sell entry points, stoploss and exit points.

thanks
  • #191
  • Jun 19, 2007 5:16am Jun 19, 2007 5:16am
Quoting isto
Right - original version is buy fractal is valid when the price at the moment it is taken is above the red line. (Quote is by heart and is not exact...)

But...

If you browse your charts you certanly will note that there are as many false buy fractals above the red line as there are buy fractals giving the start of profitable trade.

My personal belief is that, especially when lines are intertweening or have been intertweened - let say - about 10 sessions back, there is high probability the first (even first several) fractal(s) to be false signal(s).

I analyse each situation separately and do not have a clue about...

In general false signals apear often and it is hard to weed them out.

I'll appreciate comments about this (false signals) if somebody has idea(s) and would be kind enough to share them with us...
The AO can be of some help here. Require the bar color to be supportive of the direction before nesting an entry order off of a fractal signal. Remember that a flat look of the extended Alligator balance lines is Bill's preferred entry setup. He is not concerned whether the signal is true or false; that's why he called this setup a "low rent district." Remember too, a fractal cannot give a valid signal unless it is 1) the most recent fractal in that direction and 2) a hit on it would be above the Alligator's teeth if buying; below them if selling. Requiring that hit to also be above all Alligator balance lines makes a lot of sense to me; certainly when looking at Bill's preferred entry setup.
...\larry.bye
  • #192
  • Jun 19, 2007 6:04am Jun 19, 2007 6:04am
Hello,

OK - I have attached another chart as requested - with details as to where I would have placed my orders and stop loss.

The only problem with this system (is it a problem - I don't know) is that you can wait for a long long time to get the signals BUT when you do get them you are pretty much in the money BIG TIME!

Because I only started using this system last week I have not received a valid weekly or daily signal as yet and this is where the money is!

I have made on the four hour charts every day though but nothing like what is possible on the daily and weekly charts - can't wait for one of these signals my man!

I cannot demonstrate to you where I take profit purely because I don't know myself yet! Put it this way - on a $50 lot I have been happy to close the position when it has made a $100 - $200 profit BUT every single time I have done this the price has continued to move and in some instances the same lot could have been $1000 profit or more - and that kills me! Like I said - I just have to develop more faith in the system (myself with the system?) so that I can leave the positions open until maturity and this is hard to do!

By the way - I have tried this on 1 minute and 5 minute and 15 minute charts but I have lost pretty much most of the time so for anybody wanting to use this system I don't advocate using it on short time frames - I reckon 4 hours minimum and 1 day and 1 week preferred - on the longer time frames there is less chance (if any) of the trade going against you and the profits are MUCH bigger for much less risk. The only problem with this though is that your stop loss can be HUGE and it takes strength of character to not close out the position because you are getting edgy because the trade appears to be going against you. What is working for me so far (on the 4 hour charts) is: open the position, set the stop loss, and NEVER make it bigger and NEVER close the position UNLESS you want to take profit i.e. do not touch the position until you either take profit or the stop loss is hit. What I do is every hour or so refresh my chart and then move the stop loss closer to the price (I think I mentioned that I use the alligator's lips as the stop loss as per Bill) as per the value of the alligators lips. I am also a great fan of Parabolic SAR so I have this on all of my charts as well and I tend to compare the value of Parabolic SAR and the alligator's lips and use the lesser of the two BUT this depends on what the movements are like in the market i.e. volatile - I use the alligators lips otherwise Parabolic SAR ALTHOUGH this is not ideal because there have been times when the stop set with Parabolic SAR has been hit but the stop that would have been set using the alligator's lips would not have been hit and the position then continued to make profit. Fortuanately even although the stop set using the Parabolic SAR figure is hit the position the position is normally in a profit situation by this stage so profit is taken although it is of course less.

Let's keep this thread going - this system REALLY works (as a matter of fact I read somewhere the other day that it ranks as one of the all time best or 'classic' trading systems - I just can't remember where I saw it but if I find it I'll post the article).

I have not yet plucked up the courage to add to positions as new signals appear in the same (right) direction - don't ask me why - I'm chicken - but again - it will come!

I have tried this system on currency pairs but strangely enough have not made too much but I think it's because of the PIP values - too low for my liking - you are laying out $50 to make maybe $5 - not good risk/reward ration in my opinion - not anymore for me anyway. As a matter of fact only the DAX and the MSCI Taiwan are worth the trouble - even the Dow, S&P, etc. etc. are too little payback. Gold and Silver - also good.

I think the REAL merit of this system is the fact that it does not take market sentiment or any other nonsense into account - that's why it works. The only place where this comes into play is if you use the MFI and even that is technical really not so?

Anway - I am waiting for a setup like on the weekly chart that I posted - it's coming - and when it does - oh man oh man!

Stay in touch.

Regards,

Dale.
Attached Image (click to enlarge)
Click to Enlarge Name: dax 30 entry and exit.jpg Size: 128 KB
  • #193
  • Jun 19, 2007 7:10am Jun 19, 2007 7:10am
Quoting fintrans
Hello,

OK - I have attached another chart as requested - with details as to where I would have placed my orders and stop loss.

read full posting here
Thank you Dale.

The only thing I'd like to add is that from my point of view, using Balance Line entry (which is just the opposite of the fractal) will reduce somehow the waiting time
  • #194
  • Jun 19, 2007 7:28am Jun 19, 2007 7:28am
Quoting dlftrader
The AO can be of some help here. Require the bar color to be supportive of the direction before nesting an entry order off of a fractal signal. Remember that a flat look of the extended Alligator balance lines is Bill's preferred entry setup. He is not concerned whether the signal is true or false; that's why he called this setup a "low rent district." Remember too, a fractal cannot give a valid signal unless it is 1) the most recent fractal in that direction and 2) a hit on it would be above the Alligator's teeth if buying; below them if selling. Requiring that hit to also be above all Alligator balance lines makes a lot of sense to me; certainly when looking at Bill's preferred entry setup.
...\larry.bye
Thank you Larry.

What you said is true.

For me, I see two possible ways of acctions concerning false signals - when AO does not support the move and lines are too close to determine the trend.

 

  1. An entery using large stops which will allow price to drifts until market chooses the direction itself.
  2. An entery using tighter than usual stops and re-enter the when price takes fractal again


I know that the only valid is the last fractal, but as Bill said "...everyone is trading his own befieves..."

  • #195
  • Jun 19, 2007 7:32am Jun 19, 2007 7:32am
Hello again,

My pleasure - hope I'm making sense anyway.

I never thought of that BUT are you not supposed to ONLY use the balance line entries AFTER a fractal has been triggered to add to a position?

Actually - while we are on busy discussing this wonderful system I have a question that is not answered anywhere in the books or anywhere else:

Do you ever find that a valid fractal 'disappears'? I have noticed this on two of my systems (the third does not have fractals unfortuanately). These systems are at two different brokers (the one is a proprietory version of Metatrader). In other words - I have placed an order, the order gets executed, and then the position or price starts going in the wrong direction, and the fractal which I based the order price on has disappeared! Have you seen that before? At first I thought it was my imagination but it's not and like I say it happens on both systems. It appears that the trading platforms does the fractal calculations and display them 'on the fly' as it were so that when the system deems that a particular fractal is no longer valid it disappears (or something like that). I'm not too worried about that BUT I am worried about the fact that I don't know how to handle it i.e. if and when this does happen is that an indication or early warning to immediately close the position regardless of its current profit or loss?

Regards,

Dale.
  • #196
  • Jun 19, 2007 7:50am Jun 19, 2007 7:50am
Quoting fintrans
Hello again,

My pleasure - hope I'm making sense anyway.

I never thought of that BUT are you not supposed to ONLY use the balance line entries AFTER a fractal has been triggered to add to a position?
Hi Dale

I do not consider signals and market as two different things, so generally formation of a fractal is always forming one or more Balance Line signals.

I'll try to explain - let's suppose that:

  1. market is in up trend
  2. price is above Allegator's lines and
  3. 1st fractal has been formed.


Forming the fractal itself means that there is a retrace down at least 2 consecutive bars.

Until price is above the Alligator lines and there is no any other signals we consider that the move is up - so in general each of this 'at least 2 consecutive bars' has an balance line signal.

  • #197
  • Jun 19, 2007 7:59am Jun 19, 2007 7:59am
I see what you mean - you make good points - thanks.

Do you have any input on the 'disappearing' fractals?

Regards,

Dale.
  • #198
  • Jun 19, 2007 8:00am Jun 19, 2007 8:00am
Quoting fintrans
...

Do you ever find that a valid fractal 'disappears'? I have noticed this on two of my systems (the third does not have fractals unfortuanately). These systems are at two different brokers (the one is a proprietory version of Metatrader). In other words - I have placed an order, the order gets executed, and then the position or price starts going in the wrong direction, and the fractal which I based the order price on has disappeared! Have you seen that before? At first I thought it was my imagination but it's not and like I say it happens on both systems. It appears that the trading platforms does the fractal calculations and display them 'on the fly' as it were so that when the system deems that a particular fractal is no longer valid it disappears (or something like that). I'm not too worried about that BUT I am worried about the fact that I don't know how to handle it i.e. if and when this does happen is that an indication or early warning to immediately close the position regardless of its current profit or loss?
No fractal cannot disapear once created. This means that you have at least 5 consecutive bars (may be more) and one of them has highest high or lowest low from the group. So until 5th bar is not compleated we cannot be sure that the fractal is valis.

Some softwares or scripts might show fractal on the 4th or event 3rd bar considering this as a help to their customers, but I dobt it is useful...

Metatrader is a great tool and I'm a big fan of it but ...

... if one does not have deep knowledge of the system, relying on some script to do the work, soon or later this behaviour will result significan loss.

I think that this system is so simple and natural that once known, trader does not need any tools to use it but the price...
  • #199
  • Jun 19, 2007 8:01am Jun 19, 2007 8:01am
Quoting fintrans
I see what you mean - you make good points - thanks.

Do you have any input on the 'disappearing' fractals?

Regards,

Dale.
I'm not so fast as I would to be
  • #200
  • Jun 19, 2007 8:13am Jun 19, 2007 8:13am
Thanks a lot for the reply - and you just nailed it!

That's exactly what is happening i.e. both systems are displaying the fractals too soon i.e. not waiting for the fifth bar to complete but displaying the fractal WHILE the fifth bar is forming! That's VERY dangerous and come to think of it on some of the losing trades that's EXACTLY what has happened i.e. everthing looked good, order executed, and then BAM - fractal disappears and the price turns against you. Thanks my man!

I don't use Metatrader scripts at all (not to trade anyway - just the standard indicators that come with the package) - I sit in front of this stuff 25 hours a day BUT that's the problem - trading on a daily basis does not give you much to do other than sit and watch which sometimes is not a good thing!

Having said that though - now that you have answered my question about the 'dissapearing' fractals maybe I should carry on with the 4 hours charts and see what happens!

Thanks,

Regards,

Dale.
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