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Bill Williams Indicators | Chaos Theory
The given indicators came into being by the strategy suggested by a legendary trader Bill Williams. Due to having a good understanding in the psychology of market he developed his own method of trading which is based on meanwhile using a rational approach to the analysis of the market and the irrational logic of chaos.
Williams rejected the science of chaos: Chaos - this is the higher degree of order, where the organizing system is based on random and chaotic events.
B. Williams argued that price movement is random and unpredictable which cause chaos in financial markets. In his theory of Chaos, he rejects the linear method of trading, according to which future prices are forecasted
depending on the analysis of the past. As a result of his investigations Williams came to the conclusion that standard indicators have limited capabilities because of their linearity.
To understand the overall structure of the market B. Williams advised to analyze the market through the following five dimensions:
- Fractal (phase space)
- The driving force (energy phase)
- Acceleration / deceleration (power phase)
- Zone ( combination of strength / power phase)
- Balance Line
For understanding and analyzing these dimensions there have been established a number of indicators.
AC Indicator - Accelerator Oscillator
The Accelerator Oscillator is an indicator which fluctuates around a median 0.00 (zero) level which corresponds to a relative balance of the market driving force with the acceleration. Positive values signal a growing bullish trend, while negative values may be qualified as a bearish trend development. The AC indicator changes its direction before any actual trend reversals take place in the market therefore it serves as an early warning sign of probable trend direction changes.
Awesome Oscillator - AO Indicator
The creator of the Awesome Oscillator, as well as several other indicators and oscillators, is the famous trader Bill Williams. In fact, the AO was a kind of addition to the Alligator - another “invention” of Bill Williams, and the MACD mechanism was adopted as the basis for its creation, albeit with significant changes.
Fractals Indicator - Williams Fractals
After a particular price pattern appears on a graph, we can identify an already shaped fractal.
Gator Oscillator Explained
Being an oscillator in the form of two histograms built on either side of the naught line, the Gator Oscillator plots the absolute difference between the Alligator’s Jaw and Teeth (blue and red lines) in the positive area and the absolute difference between the Alligator’s Teeth and Lips (red and green lines) in the negative area. The histogram’s bars are colored green if exceeding the previous bar’s volume or red if falling short.
Market Facilitation Index Indicator - Bill Williams MFI
The absolute values of the Market Facilitation index are represented by the histogram's bars while the comparison of the index and volume dynamics are given in colors which are vital in terms of reading the indicator signs.