Bill Williams Chaos Theory

Bill Williams Chaos Theory


The traders have different strategies in order to achieve success in financial speculations. Sometimes they use methods similar to casino game, or neglect risk management, or throw themselves into mathematics in search of regularities of, it should seem, completely erratic market behavior. However, curiously enough, wherever the searches of knowledge will go, in most cases it leads to new discoveries.

Bill Williams can be considered as the founder of the Chaos Theory; he was the first who suggested to use fractals in trading. The fractals are some geometrical formations, the main feature of which is self-similarity, i.e. from the small elements is constructed more large-scale structure, which duplicates the form of the smaller formations. The theory states that in particular at this feature of similarity all elements of the nature are organized from the riverbed, to the human brain.

How the fractals can be useful in trading?! Very often it can be noticed that some figures at charts appear with constant regularity in a greater or lesser degree. In such way, it can be made a conclusion, that after a while the market repeats its movements similar to already existing elements. If to determine such figures, then the forecasts can be made with a closer approximation, and, therefore, used in one’s discretion. Bill Williams suggested to determine the Forex-fractal, as several candles, one of which will be the local minimum or maximum in the presented time scale. For simplicity, he made an indicator, which became the highly popular and now is a standard for trading terminal MetaTrader4.

Today the Chaos Theory developed so greatly, that it went well away from the initial idea of Bill Williams. The main point has remained the same, the search of the self-similar figures at charts for prices’ forecasting. The modern Fractal Theory is such that traders search not the fractals, but the monads, a little bit bigger formations, than five-six candles based on self-similarity. Besides, a Mirror Theory, the branch of the Fractal Theory, made a long way, testifying that the market, at achievement of some points, reflects itself as in the mirror. Examples, which are made by the market, amaze, how the forecast can be true, built on such theory. Moreover, the adherents of the mirror markets say that even unpredicted events of the fundamental character have been already took into account by the market.

The thematic example is an act of terrorism in London: before it the currency chart does not show any technical backgrounds for a big movement, but the mirror indicators pointed to the strong impulse, which has happened with the help of terrorists.


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