Bill Williams is a trader and author of books on technical analysis, trading psychology, and chaos theory that applies to various financial markets such as forex, stocks, and commodities. He has developed indicators such as the Alligator, Awesome Oscillator, Accelerator/Decelerator Oscillator, Fractals, Gator Oscillator, and Market Facilitation Index.
He believed that one of the major causes for traders losing in the markets is their extended reliance on various types of analysis, which includes both technical and fundamental, and the rules applicable to them. For him, these rules don’t always produce results and might even be useless or dangerous since the markets are constantly changing, thereby dismantling theories and patterns that held in the past.
Instead, Williams thought that achieving excellence in financial trading requires a thorough understanding of the structure of the market. To do this, one needs to look at five dimensions: fractal, driving force, acceleration/deceleration, zones, and balance lines. These combine into a sensitive approach for exploring market dynamics, which Williams says enables him to catch no less than 80% of the market move.
The Alligator indicator is comprised of three moving averages: the 5 SMA moved by 3 bars into the future, 8 SMA moved by 5 bars into the future, and 15 SMA moved by 8 bars into the future. The first one represents the Alligator’s lips, the second one is the Alligator’s teeth, and the third one is the Alligator’s jaws.
This indicator helps determine the presence or absence of a trend, along with its direction. The lines must be in ascending order from top to bottom to indicate an uptrend and in a descending order to show a downtrend. If the lines are intertwined or in the wrong order, the Alligator is said to be sleeping with its mouth closed which might stop traders from opening new trades then. However, the longer the Alligator stays asleep, the hungrier it gets and the more vigorously it will start a new trend.
The Gator indicator is a histogram that shows the difference between the Alligator indicator’s teeth and jaws. This simply helps a trader better visualize upcoming trend changes or when the Alligator is about to sleep or wake. In particular, when the indicator bars are both green and red, the Alligator is about to wake. It is eating when the bars are green and fills out when the first red bar forms, before it starts sleeping afterwards.
The Awesome oscillator shows the difference between the 34 SMA and the 5 SMA. As such, the indicator mirrors the up and down moves of the short-term MA relative to the longer-term one. Since it is treated as an oscillator, a buy signal might be opened when the indicator is above zero and a sell signal might be opened when the indicator is below zero.
More complex rules are set for entry orders involving the size and direction of the candlesticks. For instance, a buy order is confirmed when the first two bars are red and the third bar is green. A sell order is confirmed when the first two bars are green and the third bar is red.
Fractals refer to the tops or bottoms where the market reverses. These may be used on their own or in combination with other indicators. For a fractal to form, there should be a series of five consecutive candles where the middle one is the highest preceded and succeeded by two lower/higher ones.
As such, fractals show points at which price failed to hold and therefore reversed. This implies that when price beats its old fractal, there is more trend strength underway. These typically help traders gauge support and resistance levels, including breakouts. It may also be used in tandem with trend lines.
The Market Facilitation Index measures the market’s willingness to move price. This is computed by taking the difference between the high and low then dividing by the volume. According to Williams, this is a more truthful measure of market action than stochastic, RSI, or any other momentum indicator. The MFI may be used in both short-term and long-term time frames and is available on the MT4 platform.
There are four combinations of MFI and Volume corresponding to different colors and names: Green, Brown (Fade), Blue (Fake), and Pink (Squat). Green means that the market is already on the move and that the best course of action may be to go with the market. Brown means that the market is losing interest in advancing further, which suggests that the trend is about to end. Blue indicates that the market has made a strong move but that it is not supported by volume. Lastly, Pink appears at the end of the trend, which is characterized by rising volume and stalling market movement. A breakout is likely to follow, possibly indicating a reversal or continuation.
Lastly, the Zone indicator might be useful in pressing one’s advantage when the market is moving your way. This indicator might be helpful for aggressive traders seeking to maximize their gains when momentum, acceleration, and price action confirm that conditions favorable for sustained moves.
Bill Williams has had around 50 years of trading experience and, after writing his books throughout his career, he is now coaching traders and offering private tutorials. His best-selling books are Trading Chaos, New Trading Dimensions, and Trading Chaos: Second Edition.
He has also been giving speeches on subjects including the fractal of the Elliott Wave, the money flow index, and the Profunity Alligator in the US, Europe, and Asia. His daughter is currently the president of the Profunity Trading Group after Williams retired in 2003.
Profunity is a holistic approach to trading developed by Bill Williams, with the group established in 1984. The method integrates chaos theory, technical analysis, and psychology into a collection of rules and principles, as well as indicators that purportedly produce consistent and substantial profits while reducing anxiety and promoting personal wellness.