Awesome Oscillator - that's all!!!

[dpaterso]

OK - well - while I'm in the mood for sharing - let me post my 'magic bullet'.

Bill Williams' Awesome Oscillator!!!

Take a look at the chart - Dow Jones Industrial Average - Daily.

Rules: go short the moment a red AO bar appears - stop and reverse the moment a green AO bar appears - simple as that!

Following the above you would have, for example, gone short on 20/07/2007 at 14077 and even if you closed out on Friday afternoon you would have closed out at 13317. That my friends is 760 PIPs in 4 days - at $1 per tick (or PIP). So let's say you had 10 lots open which would cost $500 to open (margin) - you have now made $7600 AND you should still be in this trade.

Now - you should stay short as long as there are red AO bars appearing - and you should stay long as long as there are green bars appearing. I use Mr Williams' Accelerator/Decelerator Oscillator (or AC) for exits. In other words - I enter depending on the color of the AO and exit when AC changes color BECAUSE AC detects a change in momentum (or what I call 'traders interest' in the market) which normally signifies a pending price reversal coming long before (or at least 2 bars before) AO changes color but this is just me. True - it ends up that I sometimes exit too early because AO stays red or green but AC changes and then changes again - but at least I very seldom get whipsaws nowadays.

Although the AO indicator actually forms part of Bill Williams' Profitunity (Chaos) Trading System (which would of course be a new thread) - it can be used on its own - as Bill says in his book 'Trading Chaos - Second Edition' - and just using the AO he reckons should be worth at least seven figures to you in the next few years. I now agree with him!

Once again - same as my 'Parabolic SAR - that's all!!!' thread:

Only Daily / Weekly / Monthly charts (that is if you want to make REAL money otherwise it does work on any timeframe although anything less than 30 minutes does tend to give you more small losses but overall the profit is still there just not as much. Also - on Daily's and longer - you're pretty mich immune to those 'pesky' news releases)
Patience
Don't mess with the settings of the indicator
Trust the indicator
Don't give up on the indicator after your first loss - stick with it

For added peace of mind you could ensure that you are trading in the same direction as one timeframe up but again - then you are not doind a stop and reverse action - and your trades will be fewer and far between.

Now I do know that, again, because of the volatility this past week that this is an exceptional case BUT having said that - take a look at the preceding couple of days - when there was not so much volatility - and you will see that you would STILL be in the pound (dollar) seats!!!

By the way you'll notice that the chart also has Parabolic SAR on it - that was just to back up my previous thread. It is plain to see though - that AO gets you into the trade a lot earlier than Parabolic SAR and gets you out - or at least makes you stop and reverse - a lot earlier - more profit. Like I said - the only reason I don't (can't) use this on my 'main' forex account is because the broker does not have any of Bill Williams' Indicators built in and I have not gotten around to putting them in myself (yet).

As for stop loss (that is if you are not going to monitor this every minute of every day) - put your stop loss at the high of the previous three to five bars (you could trail this as well if you wish).

Again - screw the 'analysts' on TV (I don't mean literally - although Louisa Bojesn on CNBC comes to mind at this point - sorry - in bad taste I know) - have patience - don't mess with the trades until they have run their course - and don't trade on anything less than a Daily timeframe.

I know that all of these indicators get you into trades relatively late and probably get you out too late as well BUT they at least turn profits almost all of the time. I've past the stage of trying to squeeze every last PIP out of a movement - it's cost me dearly. I just want to make the money now, pay my bills, and enjoy life again!

If you really want to see some money - have a look at Silver - using this same indicator - on the Daily's - at $10 a tick (PIP)!!!

Regards,

Dale.

[adamgalas]

Dale, thanks for the idea, I will test this out instead of SAR, but I have 2 questions for you.

1. How many pairs to trade at once?

AO is an ever present indicator so you can always be in a trade.

There are 16 pairs with spreads of 4 or less, so if you wanted to be in all of them, you would need to use 50 SL and 2:1 leverage.

But obviously no one will open up so many trades, so how many do you reccomend?

Also as to resetting stops, what do you think about +5 SL after pip profit 20-29, +10 from 30-39, +15 40-49, and +50% profit over 50 pips.

Perhaps one could make a rule to check only once/day and reset all stop losses then.

OH! INSPIRATION!

I have it! A system to trade based soley on AO that mixes all the things that have brought me success so far! Money management, technical indicators and luck!

Here it is:

Each Day check to see which pairs have potential for swing trade, meaning that AO shifts from green to red or vica versa.

Set SL of 100 pips, meaning 2:1 leverage with 2% risk.

NO take profits, exit only when oscillator turns other color.

These extreme criteria are needed for this system to capture major moves like GBP/JPY latest drop, which resultyed in 900+ profit if you followed it.

SL needs to be big enough to handle the highs/low that often occur despite the reversing trend, and trailing stop loss will often trigger on such a high/low.

For example in the GBP/JPY drop of last week you would have made 30 pips before being stopped out, missing 870 that followed.

Now this system, I'm sure will have its down times, since draw down at 2% can be high, but I hope that by septemeber 4th, when I go back to school it has at least proven itself profitable enough to warrent continued montoring.

I will use this thread to update you all on how this system is doing.

[dpaterso]

Hello.

As far as stop loss goes Bill Williams actually gives you quite few options in the complete Profitunity (Chaos) Trading System - but that uses a Divergent Bar for entry, and AO and Fractals to add to positions using a 'reverse pyramid' strategy i.e. open with 1 lot and on the next signal add your maximum e.g. 4 lots then on the next signal 2 lots and so on and so forth until you get stopped out (the theory being that your first trade is the most risky so only 1 lot on opening).

In the complete system he says to trail a stop equal to the difference between the value of the furtherest of the last two fractals in the opposite direction and your opening price. In earlier 'versions' of the system he suggests that you make your stop loss equal to the low or high (depending on whether you are going long or short) of the past three to five bars so I am just using this. On moves like the Dow on my chart though - that can be a HUGE stop - so make sure you have enough margin.

Actually - on that subject - shoud we start a Profitunity (Chaos) Trading System thread and follow it through together. It's a good system and - like I've said before - Bill Williams and J. Welles Wilder developed most of the sort of 'defacto' standard indicators that I'm sure most of use from time to time - so they have my vote - especially Bill Williams and his daughter!

Regards,

Dale.

[dpaterso]

By the way - here is a nice one coming I think (which I reckon you could profit from either using Parabolic SAR or AO and AC):

EUR/GBP - Daily.

You'll notice on the attached chart:

Parabolic SAR is about to get penetrated in the next day or two (assuming of course that the price continues going up).
AC has already turned green and is below the zero line and is moving up (although just be careful as it has been green for a while now but it is still nevertheless rising)
AO is currently red and below the zero line and I reckon it's going to turn Green any day now

And here's another:

AUD/USD - Weekly.

Notice that Parabolic SAR is about to be penetrated, AC has just turned red and is above the zero line, AO is not red yet but give it either another day or another week. Just be careful - I notice that Volume is down - not a good sign.

Regards,

Dale.

[fractal]

Originally Posted by dpaterso

In the complete system ...

Actually - on that subject - shoud we start a Profitunity (Chaos) Trading System thread and follow it through together...

You should discuss those parts of the system that are in his published books.

You should not discuss those parts of the system that are only contained in his for-sale complete system. You would be disclosing information he charges over $3,000.00 for. That would a violation of his copyright, and I'm sure he would not be happy about that.

[dpaterso]

Thanks for that - funny - I have been wondering about that issue for a while now.

Put it this way - there ARE other websites with threads pertaining to his system - and I know that he knows about them. Actually - an 'abridged' 'version' of the entire system is detailed on a brokers' website (although it is an earlier 'version' of the system). I did point this out to his daughter (actually I just wanted to know which 'version' of the system should be used now) and wanted to know if it was sanctioned by them and she did not respond to that part of my email so I'm still not sure but on the other hand I would imagine that they have the money and the clout to have had it removed and have not done so (yet).

The $3000 you refer to is for their home study course which contains DVD's and more documentation etc. etc. and (I think) access to the Profitunity Traders themselves.

Put it this way - the trading system(s) themselves actually form (surprisingly) a small portion of the books. There is much more content relating to the psychology of trading, fractal geometry and its relevance to the market, elliot waves (the first book mainly), and some other indicators used and obviously good 'life' advice. These things you could not possibly convey on a site like this.

On the other hand - there is also an element of 'decency' and 'trust' involved here. In other words - if we started a thread - I would expect that everyone would take $50 or $60 out of the profit on their first couple of trades using this system and buy the latest book - I mean - that's only fair - don't you think? If the truth be told I started with a 'copy' of the 'abridged' version from that brokers' website - and then bought the books (I bought all of them of course - just have that type of personality i.e. nothing in small doses - but - according to his daughter - only the last version or 'Second Edition' is required). In my opinion - although making money is all important - the psychological aspects touched on in the books - as well as the personal advice - are what you are paying for. Put it another way: the system(s) will make money to start with - the discussions on trading psychology and advice will keep you in the market for years to come - and that's where the real money is.

What do you think?

I was thinking of starting like a 'Profitunity (Chaos) Trading System by Bill Williams and Justine Gregory-Williams Day Trading Partners Thread' (trading can be a lonely occupation you know) and anybody interested could share their views and we could follow the trades through together. Just a thought. If anybody shows some interest in this I will contact them beforehand and bounce my idea off of them and see if it's OK.

Regards,

Dale.

[merkel04]

Hello,

I've been checking out the AO indicator. So far, it does look like it can produce significant profits. I do have a question about it though. I was looking to use it on a 1hr-4hr chart. On the GBP/USD chart, it seems to produce a few false signals. Do you have any recommendations on avoiding these? So far, my guess is that with the few false bars, you'll have to take the small hit that they produce, and that money management will continue putting your profits above the red. BUT if i'm missing something, I would love to know what!

Thanks alot,
Brian

Edit:

Hard to see that image, heres a direct link to the full size:
http://img263.imageshack.us/img263/8726/aochartdt7.gif

[merkel04]

Hmm, well after searching around the net about the AO. It seems that some believe it isn't a signal until it crosses the mid line. Would you agree with that? After quickly scanning a few days of chart data, it seems this is more accurate, and safer trade. That is just after a quick glance though, I will be looking over more charts in closer detail for the next few hours.

[dpaterso]

Hello,

OK - well - let me give you some points to ponder:

There are three books by Bill Williams and each of these details different entry methods using AO:

In the latest book - you basically just go short when AO turns red and is above the zero line and stop and reverse (and go long) when AO turns green - and is below the zero line (and that is the action described in this thread).

The 'middle' book - you go short when AO turns red and is above the zero line - and you only stop and reverse when AO is showing 'double peaks' and is below the zero line i.e. it was green - then turned red - then turned green again - and that is the entry point (oh and the second peak has to be lower than the first).

In both the first and 'middle' book the crossing of the zero line in either direction is an entry point.

What I have found (with the indices anyway) is this: when the 'saucer' is sort of 'low' - in other words - the actual lines that make up the AO are very short and close to the zero line - this normally means (to me anyway) that volumes are low and there is nothing new coming into the market to move the price. From what I have seen this is when you get nailed - and I'm sure this is when the brokers are hunting stops - and it almost always happens throughout the day just until 14:30 SA time (which is 08h30 NY time) i.e. pre-market. Otherwise - it's just the dealers on the floor trading contracts among themselves. I have had the best success rate by waiting until a relatively large peak occurs and then as soon as the AO changes color you enter and then it normally goes to an equally high peak on the opposite side of the zero line - changes color - and that is where you stop and reverse. Having said all of this it should not be an issue on the longer timeframes i.e. Daily and above - just provided for some extra insight - and this is very apparent on the 15 and 30 minute charts.

Another way of being 'sure' is to wait until AC changes color - two green bars if it is above the zero line - and three green bars if it is below the zero line - and then - when AO changes to the same color you enter. I have found that this gets you into a trade VERY late though.

The way I figure it is this: you have to be prepared to take the loss - whatever it may be - at the time of the stop and reverse - and in the long run the nett effect of all of this should be profit. Every chart I look at seems to support this theory. When the market is quiet I can see where you are constantly taking a loss but when the breakout occurs (and it does seem to happen every day from around 14h30 NY time) then you just keep going with it and the nett effect of the profits and losses always seems to come out as as profit (although - yes - no question about it - if you not have to take the losses - your profit would be much more).

There is another way - that forms part of the actual Profitunity (Chaos) Trading System - and that says that you place a buy stop or a sell stop above or below the price bar that has just given you the change in color. In other words - you are not placing a market order - and the theory is that if the price continues to move in the right direction as indicated by AO then your order will get executed - if it doesn't - you wait for the next signal given. My biggest problem with this method has been my (main) broker though - the day they execute a stop order at the price that I placed it at - I'll throw a party!!!

Just a note (I did mention this before): In the Profitunity (Chaos) Trading System AO is used to add on to already open and profitable positions NOT as an entry point (although it can be if your other entry points are not taken). And - like I said - Bill Williams - in the book - does say that although he does not recommend using AO on its own - it should be worth at least seven figures to you in the long run. The reason (he goes on to say) for not using AO on its own is not because it is inaccurate but because you can get far more precise with your trading (obviously by implementing the entire system). Put it this way - so far - AO on its own - does work for me - IN THE LONG RUN - THAT'S THE KEY).

I am going to post the link to the 'second' or 'middle' version of the system below. I mean - it's not like I am the only person that know where this link is - it's on a brokers website - and - like I said - before - I have tried to find out if this is sanctioned by Bill Williams and his co-author - and they have not responded to me on this - so I don't see the harm.

Please do note, however, that this is a very 'summarized' version of the trading system detailed in the 'middle' book but it does give specific details especially when it comes to the use of AO and AC.

I can't help but wonder though - is this not complicating what was supposed to be a low maintenance trading method thread!!!

: Chaos Theory by Bill Williams: Table of Content

Edit:

By the way - don't trade the system detailed above - I only posted this link as there is a lot of information about AO and AC that I could not explain any better. The system as a whole has been revised in the latest book.

Regards,

Dale.

[fractal]

Originally Posted by dpaterso

What do you think?

Your approach seems fair. As long as they are aware their trade setups are being discussed in the public domain, and could take action if they wanted, it seems fair to discuss them. As you say, they can always request that the information be removed if they decide they don't want it out there.

By the way, I have noticed that divergences in AC sometimes work for counter-trend trades, to try to catch reversals.

Also, I notice that hidden divergences often are the best trades, especially in AO, and especially if they are reasonably close together (like the saucer pattern). Hidden divergence is described on BabyPips.com. In an uptrend, AO makes a lower low, but price makes a higher low. In a downtrend, the opposite.