Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.


Bill Williams Analysis: Fractals and the Alligator Indicators

Recommended Posts

The trading theories developed by Bill Williams combine various aspects of Chaos Theory with the general tendencies seen in trading psychology to determine the ways these factors influence the trading markets. Broadly speaking, Williams’ central suggestion is that the ability to accurately forecast the trading markets comes as a result of the behaviors that are typically expressed by human psychology, and that it is possible for any trader to post consistently successful results the hidden determinism of market events (which, on the surface, might appear to be random) are ultimately uncovered.


Where Williams’ techniques differ from the wider majority seen in the market is in the idea that technical analysis (and even fundamental analysis) is unable to guarantee consistently accurate price forecasting and profitable trading results because these approaches fail to the broader workings at work in the “real” market. Williams’ work suggests that most traders ultimately lose because there is a general tendency to rely on different (and potentially conflicting) forms of analysis. Williams’ conclusions suggest that all of these approaches are useless when dealing with models that are nonlinear and dynamic (ie. the financial markets).


Trades with Market Dimensions


At this stage, it should be clear that the ideas of Bill Williams work heavily off of the concept that trading in the financial markets is largely a game of psychology. But, in addition to this, it is also important to have a unique understanding of the way markets are structured. For Williams, this means breaking down a market to its core sections, which he called Dimensions. These include the Phase Space (Fractals), Phase Energy (Price Momentum), Phase Force (price acceleration and deceleration), Zones (Phase Force and Energy in conjunction), and the Balance Line.


Using the Williams method, all trading signals can be disregarded until the early Fractal dimension gives an indication of future price direction. These Fractal signals allow traders to open a small position and then to place additional positions in the same price direction when signals from the other structural dimensions are seen. Traders should limit position sizes accordingly, as it should be understood that new trading signals will develop after the early trade is placed.


When looking to close a position, profit targets are often calculated in relation to the overall movements that are seen in the dominant trend. A good rule of thumb suggests that these targets should be equal to roughly 10% of the most recent impulsive wave. Waiting longer than this can create disruptions in the Williams method because the calculations that go into defining the Fractal areas are highly sensitive to changes in price.


The Gator and Alligator Indicators


Two of Bill Williams’ most famous indicators are the Gator and the Alligator, which, he explains, will act like a homing device which tells traders the most likely direction prices will travel. The Alligator is designed to show traders which trend is really present in the market and will keep traders away from range bound trading. The indicator itself is composed of three individual balance lines:


  • The Alligator Jaw is a 13-interval MA that is based on the midpoint of the price interval [(High+Low)/2]. In the attached chart, this is the blue line and is offset 8 bars forward.
  • The Alligator Teeth is an 8-interval MA that is based on the midpoint of the price interval [(High+Low)/2]. This is the red line and is offset 5 bars forward.
  • The Alligator Lips are a 5-interval MA that is based on the midpoint of the price interval [(High+Low)/2]. This is shown in the green line and is offset 2 bars forward.


When the three lines of the Alligator are intertwined, the Alligator is dormant, which is suggestive of range bound market activity. As is typical with consolidation periods, this can only last for so long, and the longer this is seen, the greater the potential price that prices will explode later. Looking at the actual indicator, this occurs when there is a divergence between the Balance Lines. After this is seen (and the following explosive price move unfolds), wait for the Alligator to show a dormant signal once again before exiting the position.


Determining Trend Direction


When the Alligator is sending its signals, there are trending forces at work in the market (either an uptrend or a downtrend). Here are the general rules for the trend indicator:


  • Prices above the Alligator lines indicate an uptrend
  • Prices below the Alligator lines indicate a downtrend
  • Price activity outside the Alligator lines suggest the current wave is impulsive (in Elliott Wave Analysis)
  • Price activity inside the Alligator lines suggest the current wave is corrective (in Elliott Wave Analysis)


A Look at the Williams Gator Oscillator


The Bill Williams Gator Oscillator is an expression of the degree to which the Balance lines are showing convergence or divergence. The visual display for the oscillator shows two histograms, which can be seen in the second attached chart. When the histogram is in positive territory, we can see the difference between the Alligator Jaws and Teeth (which is the Red and Blue lines). When the histogram is in negative territory, we can see the difference between the Alligator Teeth and Lips (which is the Green and Red lines).


The next element to watch is the changing colors of the bars themselves. Red colors are seen in the histogram when the histogram bar is lower than the previous interval. Green colors are seen in the histogram when the histogram bar is above the previous interval. The Gator shows convergence (intertwining in the Balance Lines) when the

Alligator is breaking from indications of range bound activity and this can help when looking to identify trends.


Bill Williams’ Use of Fractals


One of the central maxims in the Bill Williams approach holds that positions should not be established until the initial Fractal signal is generated. Until this happens, all other indicator readings can be ignored. When dealing with Fractals, buy signals are generated when five consecutive bars unfold in a set series. Bullish turn arounds are seen when patterns show the lowest low of the 5 bar series, along with two higher lows on the right and left side. When a buy fractal occurs above the Alligator Teeth (which is the Red line), stop losses can be set just above the high of the upward Fractal.


Sell signals are generated when five consecutive bars unfold in a reverse set series. Bearish turn arounds are seen when patterns show the lowest low of the 5 bar series, along with two higher lows on the right and left side. When a buy fractal occurs above the Alligator Teeth (which is the Red line), buy stops can be set just above the high of the upward Fractal. When a sell fractal occurs below the Alligator Teeth, sell stops can be set just below the low of the sell Fractal. It should also be remembered that Fractal buy signals are not considered valid if they are seen below the Alligator Teeth. Similarly,


Fractal sell signals are not considered valid if they are seen above the Alligator Teeth.

Fractal signals will be considered valid until the pending trading orders are triggered or until a newer Fractal (showing the same price direction) become apparent. If this second scenario occurs, the initial signal is disregarded (and the order for that signal should be removed).


In Williams’ analysis, Fractals are, in some sense, the “advance guard” as this is what makes up the first dimension in markets. We would need to see a breakout of the initial Fractal signal in order to consider valid the other signals that are generated by the system indicators. Later, signals might develop in later Fractal formations (in the same direction), and these can be used as a signal to add on to the position.



Share this post

Link to post
Share on other sites

I keep the alligator, the fractals and the awesome oscillator on my charts as well. Im pretty new with them but they seem to be helpful. Problem is, if they were really going to make people money, why could you get them for free on any MT4 charts?

Share this post

Link to post
Share on other sites

Hi Richard and Vince


That was one of the clearest descriptions of Williams' approach that I have read, and has

prompted me to look a little more deeply at his work.


I have the AC indicator, overlaid with a 5.3.3 stoch on a daily chart, as an indication for

trend only. I have never fully understood his alligator analogy, but it is only because I have

been too bone lazy to follow through on what each section means.


I will look more closely now - thanks for a clear and informative article.

Share this post

Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Topics

  • Posts

    • $DXCM (DXCM) DexCom stock top of range breakout watch above 75.61,

      analysis http://chart.st/DXCM
    • Date : 24th April 2018.

      MACRO EVENTS & NEWS OF 24th April 2018.

      FX News Today

      European Outlook: Asian markets moved mostly higher overnight, following on from a positive session on Wall Street and amid ongoing USD strength with a weaker Yen underpinning a 0.75% rise in the Nikkei. The Hang Seng is up 0.94%, the CSI 300 rallied 1.75% amid speculation that the government is considering easing some policies put in to limit the credit boom. The absence of any negative news on the trade front seems to have given stock markets some breathing space and U.S. futures are also up in tandem with U.K. futures. Oil prices are also up and the front end Nymex future is trading at USD 69.14 per barrel. For now though bonds are getting a boost and stock markets are also higher, with most European futures posting gains in tandem with U.S. futures and after a positive session in Asia. Today’s calendar focuses on confidence data out of France, Germany and the U.K.. The U.K. also has public finance data and Germany auctions 2-year Schatz notes.

      FX Update: The dollar posted fresh highs against the euro and yen, and many other currencies after a bout of demand in Asia, which extending a broad rally the greenback has been seeing against for over a week now. The narrow trade-weighted USD index (DXY) posted its highest level since the first week of January, at 91.07. EURUSD logged a 10-week low at 1.2184, though euro demand has subsequently fuelled a rebound to the 1.2220 area. USDJPY lifted for a sixth consecutive session, making a 10-week high at 108.87. EURJPY is also firmer, though has so far remained below the two-month high it saw last week. The gains in USDJPY have been concomitant with the U.S. T-note yield nearing the 3.0% level, which has been generating headlines, which comes with the BoJ continuing to peg JGB 10-year yields near 0.0%. The Nikkei 225 closed 0.86% for the better, more than reversing the moderate loss seen yesterday. North Korea’s Kim said that he would be willing to accept IAEA inspections of nuclear facilities.

      Charts of the Day

      Main Macro Events Today
        German IFO – The German Ifo business confidence indicator, due Tuesday, comes in a new format this month, which includes the services sector now. For the new indicator a dip is expected to 102.8 from 103.2, and a decline in the expectations reading to 99.5 from 100.1 in the previous month. However, after the better than expected PMI readings there is a bias to the upside to the numbers. In any case, we don’t expect the April round of survey indicators to really change the outlook for the ECB, which is seen on hold this week, with officials seeing scope to leave the final decision on the future of the QE program open until July, when the risks to the global outlook may have become a bit clearer and the decision is becoming urgent. UK Public Borrowing – Expectations – at 1.6B pounds from -0.272B pounds last month. US Consumer confidence – likely declined to 126.0 in April, from March’s 127.7. US New home sales – expected to rise to 0.630 mln in April from 0.618 mln in February. Support & Resistance Levels

      Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

      Please note that times displayed based on local time zone and are from time of writing this report.

      Click HERE to access the full HotForex Economic calendar.

      Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

      Click HERE to READ more Market news. 

      Andria Pichidi
      Market Analyst

      Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • Addendum:
      Anar  Chicagoans, etc, etc, -  wake up !
      This -> https://www.mintpressnews.com/cheran-mexicos-indigenous-community-that-rebelled-against-narcos-thieves-and-politicians-and-won/240979/
      instead of this -> http://massprivatei.blogspot.com/2018/04/smart-city-projects-are-really-police.html
    • $WD (WD) Walker & Dunlop stock nice bull flag breakout watch,

      analysis http://chart.st/WD
    • $BOFI (BOFI) stock narrow range breakout watch above 42.54,

      analysis http://chart.st/BOFI

Important Information

By using this site, you agree to our Terms of Use.