58- Techniques of market analysis: Bill Williams theory

Bill Williams is a famous American trader known for his unique approach to the market that comprised trading psychology and the chaos theory. Williams developed several technical indicators (Accelerator/Decelerator Oscillator, Alligator, Awesome Oscillator, Fractals, Gator Oscillator, and Market Facilitation Index). You can find these indicators in Metatrader (click “Insert”, choose “Indicators” and then “Bill Williams”).   

Bill Williams thinks that fundamental and technical analysis are not enough for good trades because they don’t allow traders to see the real market that is turbulent, nonlinear and chaotic.

Market structure according to Williams Theory

According to Williams, the market has a structure. To succeed, a trader has to understand this structure. The market structure has 5 dimensions:

• Fractal
• Momentum
• Acceleration/Deceleration
• Zone
• Balance line

Williams says that it’s necessary to understand all dimensions of the market.

Markets have a fractal structure. It means that they are made of shapes that can be in turn divided into smaller copies of these shapes. Any decision a trader makes is a behavioral fractal. To trade with profit, one has to recognize the behavioral fractal of lots of traders. This will let a trader forecast the direction of the market.

Traders should think about the chaos of the market as of something negative. Williams calls chaos a higher form of order which is governed not by cause and effect but by randomness. The market follows a path of least resistance which is defined by a hidden structure, like the flow of a river depends on the underlying structure of a riverbed. A trader has to discover the market’s structure and trade according to it.

In addition, a trader needs to know his/her “own underlying structure”, i.e. the routines and daily habits that determine his/her approach to trading, behavior, and reaction to any movement in the market.

A trader’s goal is to combine the knowledge of the market structure with the self-knowledge. Bill Williams gave his approach the name of “profitunity”. In his opinion, it’s important to stop doubting oneself and simply enjoy trading. Basically, Williams recommends to keep calm and carry on: trade, learn, gain experience, and make money. Get ready to discover how to use the indicators developed by Bill Williams for profit!