Bill Williams Trading System: How to use it effectively
Bill Williams is a world famous trader, developer of analytical indicators and creator of Profitunity strategy. In 1987, his first works on trading in the stock market were published. The author violently criticized the traditional methods of analyzing graphs. In his opinion, fundamental and technical analytics lack objectiveness. Williams was convinced that a complex of random factors had a key influence on the pricing of a financial instrument.
Later, Williams published a book "Trading Chaos", which was focused on the principles of fractal geometry. The author convincingly proved the existence of a variable pattern in the chaos of financial markets. The high popularity of this work can be explained by outstanding financial results of the author’s trade, rather than innovative methods of analyzing quotes. Indeed, during 2 years of trading in the stock market, Bill Williams managed to increase his capital from 10,000 to 200,000 USD. This result could not pass unnoticed by traders and many decided to introduce Williams' trading approach into their own practice. The author himself was encouraged to open his own trading school - Profitunity Trading Group, which today is headed by his daughter - Justine Williams. Tuition fee is 6000 USD. The training course for traders at Profitunity Trading Group is aimed exclusively at studying and disclosing the features of B. Williams's unique strategy.
Important! Indicators of B. Williams are included in the standard set of analytical tools of the MT4 platform and many traders have already managed to evaluate their "effectiveness" in practice. Enthusiasts have developed new strategies that have nothing to do with the "Profitunity" approach, so their effectiveness is not difficult to question. For example, no review of B. Williams' strategy mentions that there are 2 methods for using fractals, but for some reason attention is focused on the less effective one. Let's see what Bill Williams indicators really are, how the "Profitunity" strategy works and for what the "trading gurus" take from 1000 USD up?
Bill Williams Indicators and Traders' Mistakes
The original version of the Profitunity strategy uses 4 analytical tools developed by the author of the system:
- Awesome oscillator.
Each indicator is integrated by default in MT4.
Attention! The first version of the strategy Profitunity was developed in the 80s of the last century. Since then, the principle of pricing of financial instruments has undergone significant changes. This was mainly influenced by a significant increase in the volatility of liquid assets. The main mistake of the authors of reviews and practicing traders is that the former superficially present the basic version of the vehicle, while the latter unsuccessfully try to use these recommendations in trading. Initially, the Profitunity strategy was developed for the stock market. Yes, Bill Williams himself said that his method would be effective regardless of the financial instrument chosen for trading, but a lot has changed.
To learn how to successfully use Williams indicators in your own trading, it is important to understand the main mistakes of traders.
Unfortunately, there are so many radical errors in the descriptions of the principle of operation of the Bill Williams indicators that, to cover all, it will be necessary to consider each instrument separately:
Fractals. A peculiar pattern consisting of a minimum of 5 candles, the Hight or Low point of the average of which is higher / lower than the extreme.
The indicator is displayed on the graph in MT4 as arrows:
In fact, fractals display local minima and maxima for minor periods. The only practical application of the indicators, according to the descriptions on the network, is placing a pending Stop order at the fractal level. However, in accordance with the rules of technical analysis, it is possible to open an order in the direction of the trend when the price rebounds from the local level. This principle of trade is discussed in detail in the book “Trading Chaos” by B. Williams. This is the way to use this indicator.
The instrument is based on 3 moving averages with periods of 13.8 and 5. When using the indicator in Forex trading, it is recommended to change the MA method in the settings to “Exponential”. This will make the formation of lines more sensitive to tick price changes. In developing this tool, the author was guided by the ideas of Sidus and Puria regarding the use of sliding in the analysis of financial markets. Not understanding this, novice traders blindly follow the recommendations presented in the network, according to which the order should be opened in the direction of the slips only if all lines are directed towards the current trend. The result is the following:
Horizontal lines marked points in turn in the market. You do not need to have significant experience in trading to understand the obvious thing: the signals are displayed after the movement has been worked out. Of the 3 signals presented in the screenshot, only one turned out to be profitable. That is why most traders use the alligator only as a trend indicator that serves as a filter of false signals. In fact, it is enough to make small changes in the interpretation of the signals of this instrument to make it an effective and key element in trading:
The true signal for opening an order is the intersection of a different line moving with a period of 5 with a period of 8. The points for opening trades are marked on the screenshot. As you can see, this significantly increases the efficiency of the indicator.
The possibilities of an awesome oscillator are greatly exaggerated by both the developer and the traders. This tool actually has nothing to do with the Profitunity strategy and was developed as an independent indicator. Awesome Oscillator is effective in currency futures trading, if it is used to detect divergences:
The control signal for opening a position is the histogram crossing the zero line in the direction of a potential trend. It is worth saying that the Awesome Oscillator reveals divergences much more efficiently than the popular MACD.
Of all the considered indicators, the latter enjoys special popularity, since, based on statistical studies, enthusiastic traders were able to derive several types of trading signals for this instrument.
Crossing the zero line. In practice, this signal is not effective, because it is very late.
Formation of 3 histogram bars in a row of the same color, regardless of their location in relation to the zero level. To be convinced of the harmful consequences of the use of such tactics in practice, it is enough to pay attention to the oscillator signals during consolidation periods, which account for about 70% of the total trading time:
When trading with these recommendations, the loss of the deposit is a matter of time.
This method of applying the "magic" oscillator is also not related to the method of Bill Williams and was developed by unknown traders. The pattern consists of 6 bars of the histogram, which together form a shape similar to a saucer. Of these, 3 bars are red, and the rest are green. The opening of the order supposedly should be in the direction of the last three columns:
The screenshot shows a segment of the chart on which 3 trading signals are formed. Of these, 2 turned out to be unprofitable. Such statistics do not justify the use of strategy in practice. These signals are really effective with a pronounced trend, which happens quite rarely.
As you can see, none of the popular methods of using the Awesome Oscillator lead to the expected result. This tool is advisable to use only when trading futures solely to identify divergences.
Wrong timeframe selection
Another common mistake of traders who tried to use Bill Williams indicators in trading is wrong timeframe selection. The key elements in the Profitunity strategy are fractals and the Alligator. These indicators can be called trend indicators, so their use for the analysis of graphs with periods M1-M30 is impractical. The fact is that on these timeframes market noise prevails, which prevents the correct operation of analytical tools. The optimal period for trading Williams indicators is H4.
How to use Williams trading strategy effectively
For trading, you will need to install the Fractals and Alligator indicators with standard input parameters on the chart. The finished template will look something like this:
To open a Buy order, you will need to wait for the following confirmations:
Green sliding crosses red from bottom to top.
The last fractal is pointing down.
To open an order Sell signals are mirrored. Stop Loss is set at the level of the last fractal. Placing a take profit is not necessary, but the value of this order can be fixed and make up to 70% of the average daily volatility of the asset selected for trading.
To understand the principle of trade and evaluate the effectiveness of the strategy, it is recommended to pay attention to a few examples:
On the presented graph, 5 signals for opening positions were formed. You should consider each of them in more detail:
The transaction is opened in accordance with the rules of trade. The vertical line is the entry point. Exit from the transaction is carried out after the formation of the opposite fractal. The result is a fixed profit of 240 points.
The upward local trend is still relevant, and the re-formation of a fractal in the relevant direction gives grounds for placing a trade order.
The situation is completely analogous to that considered in point 2.
Against the background of high liquidity, the Alligator displays a false signal to open a Buy order, but the last fractal is bearish, so refrain from trading.
As can be seen, the integrated use of the indicators Alligator and Fractals is more than effective. Fractals not only play the role of a good filter, but also display the most correct points for taking profits. Now it is recommended to pay attention to the signals of these indicators during periods of consolidation.
With lateral movement of the chart, a mass of false signals is displayed, the vast majority of which effectively filter fractals. As a result, only 3 convincing signals were formed, 2 of which closed with insignificant, and 3 with good financial results.
Attention! When trading with the Profitunity system, the risk for each order should not exceed 2-3% of the deposit. The optimal period is H4. The potential return is up to 20% per month, depending on the volatility of the currency pair. If it seems that this is not enough, then you should pay attention to the profitability of bank deposits or mutual funds.
Novice traders are advised not to trade more than 2 financial instruments.
Based on the information provided, we can conclude: Bill Williams indicators and Profitunity strategy are effective. By applying them in practice it is possible to achieve a stable profit. The main problem of most traders was the incorrect interpretation of trading signals.
Author: Kate Solano, Forex-Ratings.com