3 Wise Men

Good Day,

Although I have seen several threads discussing Bill Williams indicators, I decided to automate his "Three Wise Men" strategy as outlined in his book "Trading Chaos - 2nd edition" mixed with few of my own thoughts.

Indicators used (standard MT4 indicators, all with default settings):

1. Alligator
2. Awesome Oscillator (AO)
3. Fractals

Definitions:

1. BUDB : Bullish Divergent Bar
   1. Have a Lower Low than the previous bar, AND
   2. Must Close in the Upper Half of its range

   
   

2. BEDB : Bearish Divergent Bar
   1. Have a Higher High than the previous bar, AND
   2. Must Close in the Lower Half of its range

   
   

3. Angulation : I will use my own definition for angulation. I will consider an angulation is good if the distance between the High of a BUDB or the Low of a BEDB and the Alligator Lips is greater than the distance between the Alligator Lips and the Alligator Jaw.

3 wise men trading possibilities:

1. Break Out of a valid Divergent Bar (Good Angulation and AO in opposite Color) - single entry
2. Break Out of the third consecutive bar with AO color similar to 1st wise man trade direction - multiple entries
3. Break Out of a completed Fractal in the trade direction - multiple entries

Long Entries :
Will be in type of Buy Stop Orders with user input buffer pips for entry and stop loss, as follows:

1. Break Out of a (BUDB), stop loss at Low of BUDB
2. Break Out of the third bar corresponding to the third AO Green Bar. This could generate multiple add-on entries, while trade is a live.
3. Break Out of an UP fractal, in the direction of the trade. This could generate multiple add-on entries, while trade is a live.

Short Entries :
Will be in type of Sell Stop Orders with user input buffer pips for entry and stop loss, as follows:

1. Break Out of a (BEDB), stop loss at High of BEDB
2. Break Out of the third bar corresponding to the third AO Red Bar. This could generate multiple add-on entries, while trade is a live.
3. Break Out of an DOWN fractal, in the direction of the trade. This could generate multiple add-on entries, while trade is a live

Exits :

1. Either by hitting the initial Stop Loss (or the Trailing Stop Loss), or
2. When an opposite Divergent Bar signal occurs (Close all and reverse)

Chart Example :

subscribed!!!

the problem with 99% coders and/or system creators, they create one side rules then flip it to create the opposite for buy/sell. actually this is wrong. price moves down 3-4 times faster then moves up. also when you go back chart history, monthly chart, you will see bars starting from most probably either upper left corner or lower left corner. this is one of big effect on chart's behaviour.


Long Entries :
Will be in type of Buy Stop Orders with user input buffer pips for entry and stop loss, as follows:

1. Break Out of a (BUDB), stop loss at Low of BUDB
2. Break Out of the third bar corresponding to the third AO Green Bar. This could generate multiple add-on entries, while trade is a live.
3. Break Out of an UP fractal, in the direction of the trade. This could generate multiple add-on entries, while trade is a live.

Short Entries :
Will be in type of Sell Stop Orders with user input buffer pips for entry and stop loss, as follows:

1. Break Out of a (BEDB), stop loss at High of BEDB
2. Break Out of the third bar corresponding to the third AO Red Bar. This could generate multiple add-on entries, while trade is a live.
3. Break Out of an DOWN fractal, in the direction of the trade. This could generate multiple add-on entries, while trade is a live

This may be true for stocks or commodities, not for currencies.

some.........you should find where it comes from

Many counter examples available ....






However, I don't want to waste my time proving such a thing.

Lets stick to the thread subject, please

last comment,sorry usdjpy monthly chart left side comes from upper left.its reversed according to the gbpusd.so does usdcad

Looks interesting..will be following this one.

Where is the logic that supports this theory? Taking into account in that chart the symbol is GBP/USD. So, basically you say, if the broker decides to use USD/GBP instead the price movements were been different.

The 1st Wise Man

Signals :

1. Buy Stop Order above a BUDB with good angulation and AO indicator is Red.
2. Sell Stop Order below a BEDB with good angulation and AO indicator is Green.

For definitions of BUDB, BEDB and Angulation, please refer to post # 1.

Obviously the 1st Wise Man signal is a Counter Trend signal.
So I consider this man to be the lease wise man out of the three.
I might even remove it from the final system.

My first update to this was as follows:

1. Valid BUDB:
   1. Close in the upper third of the bar instead of the upper half
   2. Its low should be lower than previous x bars low. (x input by user).
   3. Its range should be greater or equal to ATR(21)
   4. Distance from Close to Alligator Lips > ATR(21)

   
   

2. Valid BEDB:
   1. Close in the lower third of the bar instead of the lower half
   2. Its high should be higher than previous x bars high. (x input by user).​
   3. Its range should be greater or equal to ATR(21)
   4. Distance from Close to Alligator Lips > ATR(21)

   
   

System Template

I think the current method I used to compensate for the Angulation Requirement as outlined by Williams is not correct, which leads to taking false signals and missing good signals.

Angulation Requirement as outlined by Williams says that a BUDB or BEDB should be considered valid if the Angle between the below 2 lines is wide enough

1. an imaginary straight line drawn between Alligator Teeth and Alligator Jaw, starting from the point the price was in the Alligator mouth
2. an imaginary straight line drawn below the price action,starting from the point the price was in the Alligator mouth

My suggestion to use a distance between price close and Alligator Lips does not go in line with the above.
So I will workout another solution for this.

Suggestions are welcome.

my suggestion to fit a line to the alligators MA and measure the angle.

This is the 1st draft version of the EA
only 1st wise man is implemented so far, but I am still working on a better angulation calculation as discussed in the previous post.

Measuring the angle is not as easy as it might look.
Plus, I had a difficult time drawing the lines even manually.
Because of this I am looking for an alternate programmable way to get as close as possible to Williams Angulation definition.

A quick backtest on eurusd

I found a free Angulation indicator on MQL forums, but it seems that it was removed or something, as I couldn't download it.

https://www.mql5.com/en/market/product/4370

wide enough is a fuzzy term and depends on human discretion.

Indeed.

The 1st wise man is so fuzzy because of angulation which Williams stresses that it should be "good" angulation
, while the 2nd and 3rd were precisely defined.

Hi Khalil,

I guess that the product is not compatible with newer versions of MT4. And the author did not update it, so it cannot be downloaded on the newer versions of MT4.

Best,
Math