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Thread: Trading Chaos

  1. #1

    Default Trading Chaos

    Hi guys,

    I would like to start a thread about Bill Williams "Trading Chaos" style.

    If you are unfamiliar with this style, there is a complete set of information/signals available on the Alpari website:


    Using this style I generally trade the first 6 hours from London open (giving me the first hour of NY also). I trade the following pairs on the hourly chart (or 30-min if things are looking good there):

    GBP/USD, USD/JPY, USD/CHF, EUR/GBP and USD/CAD. This gives a comprehensive (but de-correlated) market profile to cover, profits in multiple currencies (allowing for a smoother equity curve) and generally keeps me busy.

    The main reason I like this style is it allows me to continue living my life, only need to check the computer about 5 minutes every hour and place buy stops and sell limits appropriately. The use of stops/limits also keeps me from buying on sell days and selling on buy days (famous pit trader advice).

    My main strategy is simple:
    To follow all the BW signals on the pairs I have decided to trade that night. At the end of the evening I do a quick EW count on the daily chart and if my positions are against what I believe to be the current or next wave, I will cash them in. Otherwise exit half at profit and let the rest ride at reduced risk. For example, if we are in corrective wave on a daily, I will generally cash positions in. If I am lucky enough to be holding longs at the beginning of a wave 3 move up, I will try to hold those positions at reduced risk.

    So let's start it off (a bit earlier today), all the pairs listed above are in corrective mode on the hourly except for EUR/GBP (and the inversely correlated GBP/CHF). So I will place a buy stop at the most recent fractal high + spread (because I am using a bid chart) + 1 pip. Trailing stops at the MAs (gator).
    Picture 2.png

    The bullish divergence on AO is my impetus to buy rather than sell.
    Disclosure: Long cash, gold, stocks.

  2. #2

    Default Re: Trading Chaos

    Good morning guys.

    It is a less than ideal way to trade, but I had some internet issues last night and was unable to follow the EUR/GBP wave like I had planned.

    Looking at the charts now, the other pairs I like to trade were mostly corrective type movements overnight anyway so I didn't miss much.

    The E/G order was filled a few hours into London, and there were a few Chaos style addon signals along the way, but it seems the initial buy fractal was the best signal.

    I have highlighted the addon signal with a green thumb (two AC bars above the 0 line) and in purple squares shown what BW refers to as "the zone" a bullish area where many positions can be added. For further info about these signals hit up the original link posted above as I don't want to re-write them here.

    As you remember the original risk was 24 pips and the current floating P/L is something like +26 pips. One of my favorite S/R tools is the fibonacci of the most recent completed wave, and despite the hourly rejection of that 38.2% fib we managed to close NY above 0.90 and stay there.


    So to take advantage of the possibility of a new trend beginning I will exit half of the position here at just over 1:1 risk:reward, which puts me in a free trade (as if I am stopped now out the effect on my account balance is now 0).
    Disclosure: Long cash, gold, stocks.

  3. #3

    Default Re: Trading Chaos

    To my view on the daily, U/J has completed 5 impulsive waves down to 88, which should be followed through with a corrective a-b-c type pattern. Looks to me like wave a up and wave b down are complete so I am interested in looking for longs at this area. Especially with the huge hourly pinbar from yesterdays Tokyo open (strong bear trap).

    So while things are still relatively quiet before Tokyo gets driving, I will place a buy stop at the bar which caused momentum (AO) to cross above 0 line + spread + 1 pip.
    Picture 1 09-30-18.png

    I am keeping stops tight at 28 pips (just below the 50 fib and MA confluence) as the possibility of a strong down-trend resumption in U/J is still there!

    See you London, or if there are any especially tempting addon signals before then I will take them and post charts here.

    EDIT: As I typed this position was filled so we are now in the market. Let the games begin!
    Disclosure: Long cash, gold, stocks.

  4. #4

    Default Re: Trading Chaos

    Good idea for a thread.

    I have just started to look at this system/frame work and also like the fact that you can trade and have a life at the same time.

    Did you code the system yourself? I have completed most of the system except for the balance line addons. I started with code I found on the amibroker site.

    Do you trade anything else with the system?

  5. #5

    Default Re: Trading Chaos

    Quote Originally Posted by JonnoB View Post
    Good idea for a thread.

    I have just started to look at this system/frame work and also like the fact that you can trade and have a life at the same time.
    Yes, it seems as long as you are trading > 30 min charts the profit potential is high regardless of time frame. I have successfully traded this using the daily for great profit, which involves maybe 10 minutes of "work" per day around the NY close/Sydney open.

    Did you code the system yourself? I have completed most of the system except for the balance line addons. I started with code I found on the amibroker site.
    No. I didn't code it myself, all the indicators are provided by default in most/all Metatrader 4 installations. However, on the Alpari website I linked above there are formulas for all the indicators so it is really easy to write them yourself.

    Do you trade anything else with the system?
    I used to try and cover equity markets, commodity markets as well as forex but there are too many issues in the way for my liking. These days I just pick pairs (as mentioned above) to gain exposure to the overall equity market and commodities.

    For example, USD/JPY used to be highly correlated to the Dow but since the crash it is highly inverse correlated. So trading U/J gives some exposure to equity movements, and if I feel equity markets will move very strongly I will trade USD/CHF. USD/CHF and EUR/USD are extremely inverse correlated and EUR/USD is 90% positively correlated to the SP500 so between U/J and U/C I can get some good exposure to equity movements.
    GBP/USD provides good exposure to leading market movements as well as risk appetite, USD/CAD provides exposure to commodities (especially gold and oil) and EUR/GBP provides a USD neutral trading instrument with a tighter spread than GBP/CHF.
    Disclosure: Long cash, gold, stocks.

  6. #6

    Default Re: Trading Chaos

    I don't normally trade Tokyo using this method (prefer to scalp on shorter TF) but I feel today is great day to build some longer term positions.

    Gold is moving up right now and this is pushing USD/CAD down. I have taken short from 1.0763 with a 25 pip SL confirmed as an AO saucer sell signal. Down-trend confirmation would be break and close on the hourly below 1.0717 area.

    Combined with the current U/J long this brings the account back to a USD neutral position, it is synthetically long CAD/JPY now.
    Attached Images
    Disclosure: Long cash, gold, stocks.

  7. #7

    Default Re: Trading Chaos

    RBA rates decision made a big dent in the market just then. USD/CAD short stopped out on the spike, my guess is AUD/CAD longs were liquidated at the decision which pushed USD/CAD up. U/J took a dive but got bought back to the 90.3 zone pretty quickly (gap fill). Hoping it will hold.

    Remembering now why I don't trade Tokyo normally, it's pretty hard to reach free trade state on low volatility pairs.

    Not too concerned about USD/CAD stopped out, also long gold from last evening in free trade state. Re-entering USD/CAD short at 1.07705 with an 18 pip SL.

    EDIT: Alright, obviously trading beyond my weight here USD/CAD stopped out again on a rather large looking market gap. Moscow has just opened for trading, was hoping for some USD selling. I will step aside, let my in market trades run and wait for better positions later.
    Last edited by sinner; 3rd-November-2009 at 02:04 PM.
    Disclosure: Long cash, gold, stocks.

  8. #8

    Default Re: Trading Chaos

    Good morning guys.

    Once again without internet at home so no trading overnight for me. Optus will soon be installing fiber at my house!

    EUR/GBP free trade got stopped out unfortunately, but that's ok it was free! If I was live last night would have taken profit the second time it rejected from the 38.2% fib posted yesterday.
    USD/JPY got stopped out at -28 also. Probably my fault for trading when Tokyo was on holidays.
    USD/CAD was extremely frustrating as it spiked higher then slammed lower when gold went crazy last night. But no new trades were placed on this pair.

    Nonetheless, the equity curve is still in shape, thanks largely to being long gold from 1045 (chart and call in the gold thread).

    With Tokyo back online today I will try to regain the CAD losses scalping G/U and possibly try to rebuild USD/JPY longs. Going to be away for a few days so don't forget about me!
    Disclosure: Long cash, gold, stocks.

  9. #9

    Default Re: Trading Chaos

    Hello Sinner

    I appreciate your generosity and sharing of your trading technique. Before I was educating myself to trade BW, however it didnt go well with me. But if you success with it, Im willing to learn. How has your success rate been with BW and how long have you been trading it for? Is there any educational resources you have which could extend our knowledge of it?

    Many Thanks
    Last edited by cashflow_08; 4th-November-2009 at 04:33 PM.

  10. #10

    Default Re: Trading Chaos

    Good morning guys,

    Looks like it has been an eventful evening overnight on the markets. I don't have a lot of time this morning and am late as it is so just a couple of quick charts and justification from me.

    1. Still trying to rebuild E/G longs, we are provided with a momentum and acceleration divergence as well as our momentum oscillator crossing up from 0 again. I have taken an at market long (got to the computer too late to enter proper orders and this works out cheaper anyway) for E/G at 0.8982 with 20 pip SL.
    2. USD/CHF is in an interesting place and although we are not presented with any clear signals, I will try and take a very tight long here at 1.01535 with 10 pip SL to see some love above the 61.8% fib (hopefully). No big loss if I am wrong, trading small lots on this gamble position. Oversold and looking for a bounce hopefully!

    I will have to let both these positions ride without supervision as I will be away from tonight till Tuesday!

    Gold continues to perform and make me happy to not be trading overnight when it is doing all the hard lifting for me!

    EDIT: When I was drawing my fib for E/G this morning I noticed it had become slightly different, unsure why considering the engulfing wave from which it was drawn is still unchanged. Will need to look into it, but it will have to wait for Tuesday.
    Attached Images
    Disclosure: Long cash, gold, stocks.

  11. #11
    action-reaction arco's Avatar
    Join Date
    Feb 2006

    Default Re: Trading Chaos

    Hi Sinner/All

    I was trading Profitunity system quite successfully in 06/07, not sure why I transferred to other methods, but heres one quite nice trade - $7600+ at this point.

    I have forgotten some of my signal system as per the chart, but will try to see if I kept any paper records.

    Attached Images

  12. #12

    Default Re: Trading Chaos

    Sorry have been real busy guys but got internet at home again now so back to nightly shenanigans. Been trading the E/U alone to great success. It is a great pair for breakouts, makes me interested in trading commodities perhaps.

    Breakout of the blue line (sell fractal) and my work is done for the day in one fell swoop. To satisfy Trembling Hand the spread on exit was 1, no commission. Drawdown on the trade was less than 0.005% of account. Same conditions on yesterdays trade which was a long from just a bit higher up on AO cross 0 line.

    5 minutes of work to place the order 3 hours ago (right before I left work) filled in 15 minutes, 50+ pips profit (the chart below is about 40 minutes old, she goes down to 844). I was playing with the dog!
    Attached Images
    Disclosure: Long cash, gold, stocks.

  13. #13

    Default Re: Trading Chaos

    Hi guys, I have been a bit busy this week, so haven't been maintaining this thread but please rest assured next year will be live calls every time.

    For now we can settle with a good example of how useful Bill Williams Chaos Style is. Obviously it is just combining a few well known trading methods together but I like the combination very much!

    Today I will show the E/U entries from the last 5 days to show you can still make money from a chop market. First, let's look at what E/U has looked like on the Daily for the last 5 days:

    Picture 4.png

    As you can see, E/U has been stuck in heavy chop. But that doesn't mean we can't profit from it, and still using only trend following rules.

    The blue box highlights taking every valid H1 fractal and exiting on 3 AO bars which move against you (i.e. if you are long then 3 red AO bars is exit signal on bar close). I have shown a pipcount of profit for each box, which is only 1 original trade using the fractal breakout, not including adding on any positions using AC, AO, "the zone" and balance line trades (these addon signals allow you to milk the trend significantly if you are willing to increase your risk on new trades as they develop). In all cases using gator and "the zone" for SL definition.

    I didn't take all these trades as I am mostly done for the year, just trying to highlight what consistent application can provide in term of returns (also because I have been watching E/U all week and very impressed with its breakout reliability)

    Picture 3.png

    Box1 +~70 (this box doesn't look like a fractal because it is filled before the second hourly close, I accept that as valid fill)
    no trade next day due to news
    Box2 +~40
    Box3 +~30
    Box4 +~30
    Disclosure: Long cash, gold, stocks.

  14. #14
    white swans need love too Timmy's Avatar
    Join Date
    Sep 2007
    Between the lines

    Default Re: Trading Chaos

    Good thread thanks sinner
    The contents of this post were tested, ruthlessly, on small, cute, furry animals. Most of them were fatally harmed. Hence, if this post causes irritation, please discontinue reading immediately.

  15. #15

    Default Re: Trading Chaos

    Quote Originally Posted by Timmy View Post
    Good thread thanks sinner
    Thanks Timmy, glad you are enjoying it. Just goes to show you don't have to be a hot hand 1 tick stoploss futs trader like TH to make money. Those of us exploiting macro order flow with the trend do ok too! (for a lot less effort).

    Now that people who are interested in the idea have probably read up on the signals I will try and include some more advanced concepts to maximise profits further. Remember, I am not including explanation or understanding of any of the BW signals they are all provided for free in easy to understand format on many websites (and I included a link to them in the first post).

    What you see in the EURUSD chart I just posted is that generally, we will either get a good breakout fractal for the day, there will be no trading (due to news for example) or we will get a fakeout and be stopped out when the price retraces to the moving averages where our SL is.

    1 fractal is ok, but it can often lead us to longing at or near the end of a price wave, by the time the MAs are moving up and a fractal is formed we have already missed some of the best moves.

    To that end, we can add a bit more volatility to the mix by using a JPY cross instead of the corresponding major. This volatility should provide us with better breakout signals if you think about it.

    Compare the above chart to this one of EUR/JPY and you will see what I mean. On most days we should get an "advanced warning" of the trend provided by a fractal formed in Tokyo (which generally won't occur on the major) and several more fractals for entry during the trend itself.

    If anyone has trouble understanding that concept let me know. I have not included any blue boxes on this chart so you can go through yourself and see that it works.
    Picture 1.png
    Disclosure: Long cash, gold, stocks.

  16. #16

    Default Re: Trading Chaos

    State of play before Frankfurt comes online. Preferring a move to the down-side but hold no bias and will buy a break of yesterdays high. Risk would be approx 50 pips either way on fill. Apologies for the chart clutter, but in congestion zones like this one everything tends to bunch together a lot.
    Attached Images
    Disclosure: Long cash, gold, stocks.

  17. #17

    Default Re: Trading Chaos

    Hi, interesting thread indeed.
    Though i don't trade the EUR/JPY, i would imagine the IFO coming out at 8 PM would affect it, do you bother with the news? or not really concerned?

  18. #18

    Default Re: Trading Chaos

    Quote Originally Posted by caribean View Post
    Hi, interesting thread indeed.
    Though i don't trade the EUR/JPY, i would imagine the IFO coming out at 8 PM would affect it, do you bother with the news? or not really concerned?
    Always depends on the news for me matey. You can see in the 5 day example chart I provided above for E/U that I did not trade that day due to the news (even though it would have been profitable in the end). Today I did not give a rats about the German GDP q/q even though it could've spiked on better than expected news. I do care about German IFO but...guess what?

    I am done for the day already!

    +50 and out! We have a few options at this level. Cut and run (what I did) or exit half to make a free trade (so if stop is hit on remaining half balance remains steady) or exit half and move stops to breakeven level to lock in some profit.

    Like I said at the beginning of the thread, it really depends for me which of the above 3 I will take. If I feel my daily EW count is accurate and we are going to see more of the same I will make a free trade. If I feel I am against the EW count but still more down-side to come during the session I will cut half and move stops to BE. Sometimes I just can't be bothered holding or when trading chop like E/J has been for the last 15 days (I am also swing short from 135.691) I will just cash it right in.

    You can't really beat that, set my order 4PMish, left work 5PMish right after the order was filled, came home to see +25 and within the first 15 mins of London took another +25.

    Some of you may be concerned about the initial stoploss level which is set (in this case 50 to make 50) but it's worth noting that by the time your breakout order is filled the stoploss has already moved significantly closer to the market and you can continue moving it each bar close. I would never take the whole -50 hit anyway, probably exit if it had broken back above 133 in this case at -30.

    As I type the price of E/J has moved further down but remember we are no longer concerned, have taken our chunk of work and done for the day!

    Blue box is todays trade.
    Attached Images
    Disclosure: Long cash, gold, stocks.

  19. #19

    Default Re: Trading Chaos

    Hey guys,

    The market is still giving us nice clean breakout zones. I am a seller below yesterdays low and a buyer above that 61.8 daily fib line as it clearly is line in the sand for bears (in fact I made a good 20 pips scalping it short from Tokyo open)!
    Attached Images
    Disclosure: Long cash, gold, stocks.

  20. #20

    Default Re: Trading Chaos

    Alright, my order was filled without any slippage and I am long E/J at 132.685.

    Just noticed this. Double bullish AO divergence. The first one is a hidden bull div and second is standard bull div:
    Attached Images
    Disclosure: Long cash, gold, stocks.

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