Trading Chaos by Bill Williams

[LongandWrong]

I can echo this to a certain degree. I had a go at following the methods (almost religiously) from one of his books on one market and saw my account for that market slowly dribble away. I perservered cos I liked some of the set-ups he highlights. So I nabbed what I liked, discarded what I didn't, and now use parts of it successfully on other markets.

Like TraderDog says, IMO you need to combine it with other market experience to make it work.

 

[KarlaF]

in my opinion ( but i have to admit i never met bill w.) he is much more a writer than a trader.
and if you follow his book developement and with this his setups, you will find,
that he trades one pattern setup, one indicator setup and swinghigh/ swinglow breakouts.
nothing new under the sun.
he just finds much more flowery words to describe it.

if you understand his concept (and he can describe the stages of a market very good)
you can adapt his setups to get something which fits your style better.

find an early entry with a small position, trade the first pullback with a bigger position and trade again breakouts with a smaller position.
with the 4 chapters from his last book he just don't trade trendfollowing instead he uses also now a countertrend setup to get in early.

as with many other books or with that what others wrote...take the concept, adapt it for yourself and you have something worthwhile.

karla

 

[jessechan]

I would like to buy one of Bill Williams's books, which one should I read first?

Thanks.

Jesse

 

[TraderDog]

I would like to buy one of Bill Williams's books, which one should I read first?

Thanks.

Jesse

I would suggest the following reading plan.

First, read "Trading Dimensions", it is the most accessible book, but do not attempt to trade using only those techniques.

Second, read Frost and Prechter's "The Elliot Wave Principle" if you have no Elliott wave background. It is necessary if you are to fully comprehend his method. It will serve as background for the following reading.

Third, read the first edition of "Trading Chaos". It is complete different than the second edition. It not as accessible as the "Trading Dimensions". It assumes you understand Elliott wave concepts. My interpretation of his use of Elliott wave is not as a trading entry or trigger but as a filter to keep from trying to trade choppy, corrections such as wave 4. He suggests that if you want to trade corrections that you need to drill down to a lower time frame, usually intraday, so that you catch small impulsive waves.

Fourth, you can then read the second edition of "Trading Chaos" which introduces some counter trend techniques, which make more sense in the context of Elliott wave concepts. But again Elliott wave ideas are not used as triggers or entries but as filters to eliminate or reduce loss creating market action or as a hint to drill down to lower time frames to find trades.

Finally, you need to develop and test a trading plan that defines the mechanical and discretionary aspects. If you try to trade this in a complete mechanical manner, you will lose money. And, after reading the first book in the above reading plan, "Trading Dimensions", it will be tempting to trade the setups mechanically.

Do not let the "flowery" language in the both the trading psychology and methodology sections put you off. Do not let the unusual language or references to chaos put you off. I found that there was a lot of wisdom to be extracted but that it took significant time and working with the ideas.

 

[jessechan]

TraderDog,

Thanks very much for your very detailed suggestions. I'll try to read "Trading Dimensions" first and then see if I can digest the materials. In fact, I'm looking around to find if there's any suitable trading techniques for trading Hong Kong's Hang Seng Index Futures (Stock Index Futures). The Futures Market here is quite liquid and volatile.

Jesse

 

[pezzutti]

In that book, I like particularly the Squat Green Fade Fake bars based on the market facilitation Index. I use sometimes setups based on squats and greens.

 

[laytonm]

Hi

I've been using the methods described in Trading Chaos (v2) for about a year now. I have to say that I've found it to be a very good method. I've attached a chart of some forex trades that I've made, but I've also traded other markets and other time frames which I'm quite happy to share if anyone is interested.

By applying Williams' methods fairly rigidly I've made more profits than losses and bigger profits than losses. So I'm happy with it.

I looked on this tread to see if anyone else is using these methods and read a fairly mixed set of comments.

I have to agree that I'm not convinced that everything in the book is new and innovative, but I found the book interesting and helpful. There's a lot to learn from the psychology, and the method is based on pretty sound trading principles. What I think is novel is the way that the method combines his various indicators to initiate and manage trades.

I'm not trying to encourage anyone else to use this approach, but having seen that some folks have not got on with it, I thought I'd show that I've found it pretty good.

Like all things, I'm sure different methods suit different traders.

Regards

Mark

 

[TraderDog]

Trading Chaos (v2 & v3)

Hi

I've been using the methods described in Trading Chaos (v2) for about a year now. I have to say that I've found it to be a very good method. I've attached a chart of some forex trades that I've made, but I've also traded other markets and other time frames which I'm quite happy to share if anyone is interested.

By applying Williams' methods fairly rigidly I've made more profits than losses and bigger profits than losses. So I'm happy with it.

I looked on this tread to see if anyone else is using these methods and read a fairly mixed set of comments.

I have to agree that I'm not convinced that everything in the book is new and innovative, but I found the book interesting and helpful. There's a lot to learn from the psychology, and the method is based on pretty sound trading principles. What I think is novel is the way that the method combines his various indicators to initiate and manage trades.

I'm not trying to encourage anyone else to use this approach, but having seen that some folks have not got on with it, I thought I'd show that I've found it pretty good.

Like all things, I'm sure different methods suit different traders.

Regards

Mark

I've been trading both the v2 (Trading Dimensions) & v3 (Trading Chaos, 2nd edition) and have been profitable in applying both to equities. In my case, I have found that doing the simple sort of Elliott Wave analysis as he does in his first book increases my success rate by providing market context. In the recent market environment it has been difficult because the equities (indices) seem to be rolling over and most of the trends have been very short term. The counter-trend techniques described in Trading Chaos 2nd edition have been very helpful in this environment.

Mark, could you describe your experience or any nuances or changes that you have needed to make to trade forex. I am also interested in exchanging information on markets and time frames traded utilizing Williams' methods. You can PM me if you are interested. Trading multiple time frames and uncorrelated markets improves the smoothness of the equity curve. But I have have primarily focused on equity markets. My success with very short term time frames (5 minute bars) has been very limited.

Regards`

Peter

 

[laytonm]

Hi Peter

I've been trading different markets - stock indices, a few of the larger Nasdaq stocks like ebay (only reason for selecting this group is because I used to daytrade and am familiar with these), commodities and forex. I also used the same methods to daytrade the minidow for a few weeks. This was very profitable but too intense for me.

I use the v3 method (as you call it) for entries. I have read the other two books and so it's quite possible that I take these into consideration when selecting a potential trade. I also use some of the exits in v2 when I think that the market might be trending strongly. You'll see on my chart that I have the AC set up as well, but I am not using these setups - I end up with too many entries for me. I do use the '5 green bars' as a signal to tighten a trailing stop.

The only bit of v1 I use is that I have my charts display a 'squat' bar, and I pay more attention to reversal signals with these bars. I guess like you I consider what EW the market might be in, although to be honest I can't make head nor tail of EW theory, even with BW's approach. Doesn't seem to matter though - I've figured that all I need to know is that it's a correction of some sort when the balance lines are intertwined.

So in summary I guess I use v3 and a few bits from the earlier books. I haven't noticed that any different tweaks are helpful for any particular market though, other than can't take account of volume for forex.

I haven't taken BW's course or done any of their other teaching though. Quite happy with what I've been able to put together from the books. Essentially it gives you a very logical structured trading approach. The only disadvantage I find is that fractal signals (like any breakout technique) are prone to be false.

Pleased to hear from someone else who is making this work

Kind regards

Mark

I've been trading both the v2 (Trading Dimensions) & v3 (Trading Chaos, 2nd edition) and have been profitable in applying both to equities. In my case, I have found that doing the simple sort of Elliott Wave analysis as he does in his first book increases my success rate by providing market context. In the recent market environment it has been difficult because the equities (indices) seem to be rolling over and most of the trends have been very short term. The counter-trend techniques described in Trading Chaos 2nd edition have been very helpful in this environment.

Mark, could you describe your experience or any nuances or changes that you have needed to make to trade forex. I am also interested in exchanging information on markets and time frames traded utilizing Williams' methods. You can PM me if you are interested. Trading multiple time frames and uncorrelated markets improves the smoothness of the equity curve. But I have have primarily focused on equity markets. My success with very short term time frames (5 minute bars) has been very limited.

Regards`

Peter

 

[TraderDog]

I have taken the home study course and the "advanced" tutorial, which both Bill and Justine teach. They are the "real" deal and trade.

Almost all of what they do is disclosed in the books so the courses are not necessary to trade profitably. However, the detail and psychological work in the home study course did help to increase my confidence and consistency. For myself, the emphasis that they put on psychological insight (they really teach you "how to fish" instead of giving you the "fish" in the trading psychology area) was the most valuable component. They emphasize that ALL mechanical systems and methodologies will ultimately fail and that you really need to be capable of detached observation of market behavior so that you can adapt to changing market conditions. Because of that I have found myself making independent, tradable observations of market behavior that go beyond the specific methods in their books. The "advanced" tutorial covers v3 in the current markets and provides additional psychological facilitation.

Could you post which markets and time frames you trade? I am interested in exploring other markets. The chart you posted was a forex daily chart. I assume that the setups were all Wiseman1-3.

I've traded both the trend-following (v2) and counter-trend methods on the equity markets. I use v2 on 30 minute, daily, and weekly. The counter-trend (v3) has worked for me down to 5 minute charts provided that I account for support and resistance levels (50 day sma, 200 day sma, major fib levels, previous highs and lows, ...). EW analysis just serves to keep me out of corrective phases and attempts to get me in on the beginning of impulsive phases. Looking at the next higher time frame along with EW analysis helps to increase the probability of success on breakouts.

-Peter

Hi Peter

I've been trading different markets - stock indices, a few of the larger Nasdaq stocks like ebay (only reason for selecting this group is because I used to daytrade and am familiar with these), commodities and forex. I also used the same methods to daytrade the minidow for a few weeks. This was very profitable but too intense for me.

I use the v3 method (as you call it) for entries. I have read the other two books and so it's quite possible that I take these into consideration when selecting a potential trade. I also use some of the exits in v2 when I think that the market might be trending strongly. You'll see on my chart that I have the AC set up as well, but I am not using these setups - I end up with too many entries for me. I do use the '5 green bars' as a signal to tighten a trailing stop.

The only bit of v1 I use is that I have my charts display a 'squat' bar, and I pay more attention to reversal signals with these bars. I guess like you I consider what EW the market might be in, although to be honest I can't make head nor tail of EW theory, even with BW's approach. Doesn't seem to matter though - I've figured that all I need to know is that it's a correction of some sort when the balance lines are intertwined.

So in summary I guess I use v3 and a few bits from the earlier books. I haven't noticed that any different tweaks are helpful for any particular market though, other than can't take account of volume for forex.

I haven't taken BW's course or done any of their other teaching though. Quite happy with what I've been able to put together from the books. Essentially it gives you a very logical structured trading approach. The only disadvantage I find is that fractal signals (like any breakout technique) are prone to be false.

Pleased to hear from someone else who is making this work

Kind regards

Mark

 

[laytonm]

That's interesting, thanks.

Last year I traded the mini dow contract on 5 min bars using v3 exclusively for about 5-6 weeks. This was the most profitable trading that I have every experienced but was too intensive for me. I took some time off work to see if I could do this full time. I could from a profitability point of view, but not from an enjoyment point of view. The time difference did not help as I found that I was working evenings.

So now I trade daily bars only and trade part time with a 'day job'.

I trade the Dow or the S&P500 (not at the same time) and the Nasdaq 100. I also trade a selection of commodities. Rather than listing them I attach my quote screen which lists the ones that I follow. I use spread bets rather than the actual futures (good for daily bars only I think), and the available markets from my provider rather dictates the choice of commodities. And I follow the major forex pairs. That's more than enough for me. I usually have 3-4 trades running at the same time. At the moment I'm long gold (with a small position), short the Nasdaq, and short Wheat (just taken a third position).

Yes, all are v3 entries. I'm expecting to be stopped out of gold but we'll see. Little risked.

Regards

Mark

I have taken the home study course and the "advanced" tutorial, which both Bill and Justine teach. They are the "real" deal and trade.

Almost all of what they do is disclosed in the books so the courses are not necessary to trade profitably. However, the detail and psychological work in the home study course did help to increase my confidence and consistency. For myself, the emphasis that they put on psychological insight (they really teach you "how to fish" instead of giving you the "fish" in the trading psychology area) was the most valuable component. They emphasize that ALL mechanical systems and methodologies will ultimately fail and that you really need to be capable of detached observation of market behavior so that you can adapt to changing market conditions. Because of that I have found myself making independent, tradable observations of market behavior that go beyond the specific methods in their books. The "advanced" tutorial covers v3 in the current markets and provides additional psychological facilitation.

Could you post which markets and time frames you trade? I am interested in exploring other markets. The chart you posted was a forex daily chart. I assume that the setups were all Wiseman1-3.

I've traded both the trend-following (v2) and counter-trend methods on the equity markets. I use v2 on 30 minute, daily, and weekly. The counter-trend (v3) has worked for me down to 5 minute charts provided that I account for support and resistance levels (50 day sma, 200 day sma, major fib levels, previous highs and lows, ...). EW analysis just serves to keep me out of corrective phases and attempts to get me in on the beginning of impulsive phases. Looking at the next higher time frame along with EW analysis helps to increase the probability of success on breakouts.

-Peter

 

[TraderDog]

I also found trading a 5 minute chart very intense and have been focused on daily charts. But when the daily chart is choppy the shorter time frames seem to work better.

When you traded the 5 minute YM, did you use all three Wiseman setups? If you used all three, did you simply add equal amounts or did you try reverse pyramiding?

Did you pay any attention to S/R levels with Wiseman 1? Did you stop and reverse when a Wiseman 1 failed?

Sorry for all the questions but I am curious about how you applied v3 to YM day trades.

-Peter

That's interesting, thanks.

Last year I traded the mini dow contract on 5 min bars using v3 exclusively for about 5-6 weeks. This was the most profitable trading that I have every experienced but was too intensive for me. I took some time off work to see if I could do this full time. I could from a profitability point of view, but not from an enjoyment point of view. The time difference did not help as I found that I was working evenings.

So now I trade daily bars only and trade part time with a 'day job'.

I trade the Dow or the S&P500 (not at the same time) and the Nasdaq 100. I also trade a selection of commodities. Rather than listing them I attach my quote screen which lists the ones that I follow. I use spread bets rather than the actual futures (good for daily bars only I think), and the available markets from my provider rather dictates the choice of commodities. And I follow the major forex pairs. That's more than enough for me. I usually have 3-4 trades running at the same time. At the moment I'm long gold (with a small position), short the Nasdaq, and short Wheat (just taken a third position).

Yes, all are v3 entries. I'm expecting to be stopped out of gold but we'll see. Little risked.

Regards

Mark

 

[laytonm]

Not a problem at all. I looked at day trading because I find it psychologically difficult keeping a position open for days / weeks, especially when it moves into the red. Several times I've closed trades which would have been profitable if I'd had more patience. But as I said, I found that all day screen watching is worse !

I used all 3 signals but did not pyramid - just added single contracts. I only S&R if an appropriate fractal formed.

Cheers

Mark

I also found trading a 5 minute chart very intense and have been focused on daily charts. But when the daily chart is choppy the shorter time frames seem to work better.

When you traded the 5 minute YM, did you use all three Wiseman setups? If you used all three, did you simply add equal amounts or did you try reverse pyramiding?

Did you pay any attention to S/R levels with Wiseman 1? Did you stop and reverse when a Wiseman 1 failed?

Sorry for all the questions but I am curious about how you applied v3 to YM day trades.

-Peter

 

[KarlaF]

hi,

nice to see that there is some life in this thread.
i have replaced the fractal levels against a simple donchian channel (20 days). here i can see support and resistance and breakout failures.
at least for me this worked better on daily charts.

i still have some problems with the v3 entries. the rules for the angulation are very subjective and i fail much often with this line.
do you have any fixed rules for these lines to measure the angulation?
in my easylanguage code i set the rule for a divergent bar to be 40% of the range bar. this gives me fewer signals on a daily chart.
found it after some research more promising.

laytom, may i ask on which entry trigger you went long in gold?

best
karla

 

[laytonm]

Hi Karla

I've only been able to 'eyeball' angulation. I agree it is the only tricky bit of this approach. I try and make a rule that if there is not obvious angulation between the blue line and the price bars, then I ignore it.

Gold's a good example. I thought that there was some angulation even though the price had not moved a long way from the balance lines. I was in two minds about this but was 'persuaded' by the fact that the bullish divergance bar was also a squat. These are coloured light blue on my charts and don't show that clearly on the screen shot. The arrow shows where I went long - now stopped out as I thought might happen.

Cheers

Mark

PS will be away for a few days so will not be able to post

hi,

nice to see that there is some life in this thread.
i have replaced the fractal levels against a simple donchian channel (20 days). here i can see support and resistance and breakout failures.
at least for me this worked better on daily charts.

i still have some problems with the v3 entries. the rules for the angulation are very subjective and i fail much often with this line.
do you have any fixed rules for these lines to measure the angulation?
in my easylanguage code i set the rule for a divergent bar to be 40% of the range bar. this gives me fewer signals on a daily chart.
found it after some research more promising.

laytom, may i ask on which entry trigger you went long in gold?

best
karla

 

[One Eyed Shark]

Enjoyed reading the posts.

I have read Bill Williams books for the first time over the past 2 months ( aka v1,v2,v3) and have made a some big improvements to my trading drawing info out of predominantly v2 and v3.

I trade russell/Euro futs and previously only used price and a 20 SMA. off a 3 minute chart.

I have replaced the SMA with the Alligator ( :cheesy: still have a problem with some U.S. terminology ) and also have the AO ( 5/34 oscillator ) on the bottom of the chart.

I forget the countertrend trades, they eat up way too much profit , and angulation is far too subjective, but pyramid in very heavily using price and the AO ( v2) once a move gets under way

Forget the section on fractals and get hold of the free stuff from Joe Ross and replace the fractal trades with Ross Hooks. ( I think Williams calls Ross Hooks "Blue cross sales" ?? )

I have done some other tweaking which I will not make public but have found the content of the books have opened my eyes to a few more opportunuties that I was not taking before.

If I get a chance tommorrow I will post a chart.

 

[laytonm]

Yes, that's terribly cheesy, and awesome is not much better in my book. Nearly put me off when I started reading the books.

My main trading method before I read these books was essentially a modified Gann approach buying pullbacks when an uptrend had not been broken and vice versa. I have been thinking about replacing the fractal breakouts with something similar as well, but have not tested it. I haven't tried the balance line trades from NTD - looks as if they might be interesting in this respect.

Anyway, off on hols for a few days. Closed my wheat short for a nice profit, and Nasdaq for a tiny one. Lost on gold - would have reversed to a short if I had not been going away. Be intersting to see where it goes.

Cheers

Mark

 

[laytonm]

So my holiday came at a bad time wrt closing my nasdaq shorts and not revesing to short gold. Oh well.

 

[fxdon]

I love trading chaos..

 

[slight]

Just my 2 cents on an awesome trading system if you study it entirely and combine the various books of B.W. I like to see this thread become active again since this system is simple and can be traded successfully by anybody.
I never used another system but Chaos Trading. Combining the fractals from his latest book with the explanation of the Elliott Wave of some former book gives you the perfect trading approach, no matter what timeframe you like to trade. There is no need to attend his tutorial or buy the homestudycourse if you are eager enough to go through the books (takes months of intense studying and some dedication though).
Don't waste your time on plain TA or FA. This system is all you need to trade any market on any timeframe successfully. Of course, I did some optimization on how I use it: no divergent bars ever, I ignore all of them. The Awesome Oscillator is as awesome as the name suggests. Knowing what wave you are in, where to enter, addup and protect your position really only takes half a minute no matter what chart you look at (just as B.W. proposes.) This system gives you the edge to trade effortlessly and enjoy your spare time :clap: