Bill William’s Chaos Theory
Bill Williams says that it is better not to take trades before the first fractal is triggered.
A buy fractal is a series of five consecutive bars where the highest high is preceded by two lower highs and is followed by two lower highs. The opposite configuration would be a sell fractal. Both fractals (Buy and Sell) may share bars.
In order to add fractals in MetaTrader 4 use the "Insert -> Indicators -> Bill Williams – Fractals" menu sequence:
Fractals generate the following signals:
- if a buy fractal is above the Alligator's teeth (the red line) we would place a Buy Stop one tick above the high of the up fractal;
- if a sell fractal is below the Alligator's teeth we would place a Sell Stop one tick below the low of the fractal sell signal.
- We would not take a buy if a fractal is formed below the Alligator's teeth.
- We would not take a sell if a fractal is formed above the Alligator's teeth.
Fractals are valid until they are either triggered or a new fractal in the same direction appears (in this case the previous signal has to be ignored and the pending order has to be deleted).
Fractals are objects of the first dimension. Only after the breakout of the first fractal can the following signals be accepted to open positions in the direction of the first signal. Signals from the consecutive fractals in the direction of the first deal can be used for adding on to the position.