Strategy Author:
Bill Williams
EA Author:
ForTrader.ru Electronic Journal
Understanding Fractals:
Fractals are a crucial part of Bill Williams' trading strategy. Here’s how they work:
- Fractal for Buying: Look for a series of five consecutive bars where there are two bars with lower highs before the highest high, and two bars with lower highs after it.
- Fractal for Selling: This is the opposite—find five consecutive bars where two bars with higher lows come before the lowest low, and two bars with higher lows after it.
It’s interesting to note that the same bars can create both buying and selling fractals!
Fractal Signals:
- If a buying fractal is above the Alligator's teeth (the red line), place a Buy Stop order just one pip above the highest bar in the fractal.
- If a selling fractal is below the Alligator's teeth, set a Sell Stop order one pip below the lowest bar in that fractal.
These fractals remain valid until they’re “defeated” or until a new fractal appears in the same direction, which cancels out the previous signal.
Importantly, you need to watch where the fractal gets “defeated.” If the bar closes beyond the Alligator's teeth, that’s your signal to enter the market.
Exiting the Market:
Bill Williams emphasizes an exit strategy that’s responsive to price dynamics. This method aims to secure profits in the last 10% of a trend while capturing about 80% of the movement.
Stop Loss Techniques:
- If there’s an active trend, close your position when the close price of the bar crosses the Alligator's teeth (the red line).
- In a fast-moving market, utilize the Alligator's jaws (the green line) as a Stop Loss level. A market is considered fast if the price's incline is sharper than the green line's angle.
- After five consecutive bars in the green or red zone, place your Stop Loss accordingly (as discussed in the zone trading section).
- If a signal appears in the opposite direction, it’s time to close your open position.
For a deeper dive into pattern research, check out the 31st issue of the ForTrader electronic journal.
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