Contents.

3. The Alligator
4. The Fractal – The Breakaway Trade
5. The Awesome Oscillator
6. The Market Accelerator
Ch 3. The Alligator
(Back)

Ideally, but not always, all five highs (or lows, in a down move) should be on the same side
(higher for buys & lower for sells) of the Blue Balance Line (the Alligator's Jaw). P56 Bottom

Alligator Anatomy

Basically, the Blue Balance Line (the Alligator's Jaw) is where the price would be if there were
no new incoming information. The original calculations for this Balance Line were done
mathematically using a super mainframe computer. It is constructed by plotting a 13-bar
smoothed moving average that is offset 8 bars into the future.

The Red Line (teeth of the Alligator) is the Balance Line of one significant time frame lower.
The computer figures the exact time frame (roughly, about a five-to-one ratio). If the Blue line
(Jaw) is on the dailies, the Red line (Teeth) is roughly on an hourly basis. The Red line is
constructed using an 8-bar smoothed moving average that is offset 5 bars into the future.

The Green line (Alligator's Lips) is another significantly lower time frame. It is constructed using
a 5-bar smoothed moving average that is offset 3 bars into the future.

Therefore our construction is as follows:

Blue line—a 13-bar smoothed moving average offset 8 bars into the future.
Red line—an 8-bar smoothed moving average offset 5 bars into the future.
Green line—a 5-bar smoothed moving average offset 3 bars into the future. P57 Bottom

THE ALLIGATOR ON THE PRICE CHART

Notice that when the offset moving averages are intertwined, the Alligator is asleep, and the
longer he sleeps the hungrier he gets. When he wakes up from a long sleep, he is very hungry
and chases the price (Alligator food) much farther because it takes more prices to fill his
stomach. Whenever the Alligator has had enough, he starts to close his mouth and loses interest
in eating. (Eating here is signified by an open mouth; sleeping, by a closed or intertwining
mouth.) This is the time you want to start taking profits from the trend move. Then you simply
sit back, let the Alligator take a nap, and get back into this market when the Alligator starts to
awaken. P58 Top

TRADING THE ALLIGATOR

Here is the strategy for trading the Alligator. When the Jaw, Teeth, and Lips are closing, close
together, or intertwining, we know the Alligator is going to sleep or is already asleep. As he
sleeps, his hunger increases. The longer he sleeps, the hungrier he is when he awakens. When
he wakes up, the first thing he does is open his mouth and start to yawn. He then smells food,
either bull meat or bear meat, and he starts chasing it. Normally, we stay out of the market
while the Alligator is sleeping. We basically want to bet on either the bull or the bear—
whichever the Alligator is chasing. For our first entry, we wait until there is a fractal outside
the jaw. The fractal will be explained in the next chapter (Chapter Four) P60 Top
 ALLIGATOR BEHAVIOR
Our trading strategy is to not trade until the first fractal breakout outside the mouth. This entry
will be fully explained in the next chapter. After the first fractal breakout has been triggered,
we take any and every signal from all five dimensions in that direction. For example, if the
price is above the Alligator's mouth, we would only take buy signals and would not go short.
We would have profit-protecting stops trailing the up move. On the down side, we would only
take sell signals below the Alligator's mouth and would only buy to exit a position, not to go
long. P61 Bottom
Ch 4. The Fractal – The Breakaway Trade
(Back)
The fractal is the first of our five trading dimensions. P57 Bottom

Fractals are objects of the first dimension. Only after the breakout of the first fractal can the
following signals be accepted to open positions in the direction of the first signal. Signals from
the consecutive fractals in the direction of the first deal can be used for adding on to the position.
P5 in “Bill Williams Chaos Theory.pdf”

THE BREAKAWAY TRADE

The pattern of all markets is that they spend most of their time (70 to 85 percent ) going nowhere
and only a small part of their time (15 to 30 percent) in identifiable trends. The greatest potential
for profit occurs, however, when the markets are trending. Therefore, our first consideration is to
not be left out of any significant trend move. Remember, this is the first of our five entry
systems, and it is the first signal we take after the Alligator starts to awaken. P65 Top

FRACTAL BREAKOUT
As we saw in Chapter Three, we want to stay out of the market and "keep our powder dry"
until the Alligator is hungry and starts his search for food (either higher or lower prices). We
do not take any trades until this first fractal is triggered. P65 Bottom

THE FRACTAL PATTERN

The fractal pattern is a simple one. The market makes a move in one direction or the other.
After a period of time, all the willing buyers, have bought (on an up move) and the market
falls back because of a lack of buyers. Then some new incoming information (Chaos) begins
to affect the traders. There is an influx of new buying, and the market, finding that place of
equal disagreement on value and agreement on price, moves up. If the momentum and the
buyers' strength are strong enough to exceed the immediately preceding up fractal, we would
place an order to buy one tick over the high of the fractal. (May be we would just stay in the
market and ride the wave up ?? – DM) P65 Bottom & P66 Top

Once a fractal is formed, it will always be a fractal, but the role it plays depends on its location in
relation to the Alligator's mouth. P68 Bottom

P69 Top

Figure above shows both a buy or up fractal and a sell or low fractal.
i. If the buy fractal is above the Red Balance Line (the Alligator's Teeth), we would place a buy
stop one tick above the high of the up fractal.
ii. If the sell fractal is below the Red Balance Line, we would place a sell stop one tick below the
low of the fractal sell signal. P68 Bottom

It is essential to understand that we would not take

i. a fractal buy signal if, at the time it is hit, the price is below the Red Balance Line.
ii. a fractal sell signal if, at the time it is hit, the price is above the Red Balance Line.
This is the best method we have found to filter out nonprofitable fractal trades. P68 Bottom

Once a fractal signal is formed and is valid in relation to its position outside the Alligator's
mouth, it remains a signal until it is hit or until a more recent fractal signal is formed.
P68 Bottom
Fractals are valid until they are either triggered or a new fractal in the same direction appears (in
this case the previous signal has to be ignored and the pending order has to be deleted). P5 Top in the
book “Bill Williams Chaos Theory.pdf” This makes a HUGE difference – SAME DIRECTION. But for this,
on Jan 3, 2020, I was looking at the chart of GDXJ and there was not a valid fractal left to either
side, even though the AO and AC were signalling upside momentum and even though prices
were above the Alligator’s jaws and marching up.

Do not feed the alligator !! P82 Middle

Some Fractal examples, especially intricate ones.

a is simple
b is 2 higher highs, in the middle, counted as one. Note 2nd higher high is the signal, not first
c is 3 higher highs, in the middle, counted as one. Note 3rd higher high is the signal, not others
d & e are note worthy. When 2 or more higher highs occur, with lower highs in between, the last
one is the signal.
Ch 5. The Awesome Oscillator
(Back)
We now come to the second of our five trading dimensions: the Awesome Oscillator (AO). P83 Top

The Awesome Oscillator (AO) provides the "keys to the kingdom" when properly
understood. It takes the momentum of a subset of the immediate last 5 bars and compares it to
the momentum of the larger set of last 34 bars. Has the momentum lately been increasing or
decreasing? P84 Bottom

The AO is a 34-bar simple moving average of the bar's midpoints (H - L)/2 that is subtracted
from a 5-bar simple moving average of the midpoints (H - L)/2. This tells us exactly what is
happening with the current momentum. P85 Top

The Awesome Oscillator creates three possible buy signals and three possible sell signals.

It is VERY important to remember that we do not take any AO signals until the first fractal buy
(or sell signal, as the case may be) is triggered outside the Alligator's mouth. P86 Top

AO Buy Signals

1. The AO Buy signal when AO is above the Zero Line

SAUCER BUY SIGNAL P86 Middle

The Saucer signal is created when the histogram changes from a downward direction to an
upward direction. The green bars will diminish in size flipping to red. The green bar is the signal
bar. You only have to look for a change in color to alert you to a buy Saucer signal. P86 bottom
Rules for the Saucer buy signal
 It takes a minimum of three bars to create a signal.
 There is no limit as to how many bars can be inside a saucer.
 All bars in a Saucer must be above the zero line.
 The signal bar will be a Light Green Bar.
 You can not have a buy and sell at the same time.
 After creating a signal, you MUST have a change of direction (color) before creating
another buy signal. P87 bottom

2. The AO Buy signal when AO is below the Zero Line

TWIN PEAKS BUY SIGNAL P92 Top
The last of the three buy signal created by the Awesome Oscillator is the Twin Peaks buy signal.
This buy signal is created while the AO histogram is below the zero line. P92 Top

Rules for the AO Twin Peaks buy signal

 This signal is created when you have what appears to be the lowest low below the zero
line (lowest peak for the time).
 This is followed by higher lows but still below the zero line. They may be light red (more
negative than previous bar) or dark red (less negative than previous bar).
 This is followed by a light red low (more negative than previous bar). This fails to exceed
the lowest low formed a few bars ago. In other words, this second peak will be a lesser
negative number than the first peak.
 The signal bar is a dark red bar (less negative than previous bar).
 Any additional dark red (less negative than previous bar) bars that keep going closer and
closer to the zero line, while staying below the zero line are considered additional buy
signals.
 Another important point is that if a buy signal is generated but not hit on the price bar and
the next histogram bar changes color then that signal is cancelled.
 A Saucer sell will be created before a Twin Peaks buy.
(If a saucer sell is created below the zero line, why then are we not opening a short position,
instead of using the Twin Peaks to go long? Because when the direction is up, we go only long
and when the direction is down, we go only short. What shows direction? The Alligator. Here it
is at the bottom of page 61 “After the first fractal breakout has been triggered, we take any and
every signal from all five dimensions in that direction. For example, if the price is above the
Alligator's mouth, we would only take buy signals and would not go short. It is just that simple.
Above the mouth we only go long, and below the mouth we only go short.” )

3. THE AO CROSS BUY SIGNAL P88 Bottom

This is a very simple, straight forward buy signal. When the AO histogram bar crosses the zero
line, the histogram changes from a negative number to a positive number – a transition from
negative territory to positive territory. This is a buy signal. P88 Bottom
Rules for the AO histogram cross buy signal
 It only takes two bars to create this signal.
 First bar must be below the zero line and the second bar above the zero line.
 The signal bar must be a green bar. P91 Top

AO Sell Signals

Need to read remaining pages on AO and add to notes

Ch 6. The Market Accelerator
(Back)

The AC measures, the Acceleration and Deceleration of the current Momentum. The AC will
change direction before the Momentum and Momentum will change direction before price. P113
Top

This will help you remember the simple AC rules P113 Bottom

1. The AC Buy signal when AC histogram is above the Zero Line

A buy signal is created when after the most recent lowest low (a down peak, a red bar), there are
two consecutive histogram bars with higher highs, green bars. In the above, a is the lowest low
bar (must be red) and b & c are two consequtive higher high bars, both of which MUST be
green. Note that since AC is above the zero line, momentum is with long side, so we need only
two green bars to confirm a buy.

Rules for AC buy signal when AC is above the Zero Line P114 Top & P115
 A buy stop is placed one tick above the high on the price bar that corresponds to the
second higher high (this would be the same time frame).
 A second buy signal cannot be created until the histogram moves at least one bar lower,
creating a red bar. A new buy signal can then be created after two more consequtive
higher (green) bars.
 This signal is easy to spot because it requires at least one red bar followed by two green
bars while the AC histogram is above the zero line.
 Needless to say, you cannot have a buy if the bar is red.

2. The AC Buy signal when AC histogram is below the Zero Line

A buy signal is created when after the most recent lowest low (a down peak, a red bar), there are
three consecutive histogram bars with higher highs, green bars. In the above, a is the lowest low
bar (must be red) and b, c & d are three consequtive higher high bars, all of which MUST be
green. Note that since AC is below the zero line, a buy here would be going against the
momentum & therefore needs three green bars to confirm a buy. P117 & 118
Rules for AC buy signal when AC is below the Zero Line P117 & 118
 A buy stop is placed one tick above the high on the price bar that corresponds to the third
higher high (this would be the same time frame).
 A second buy signal cannot be created until the histogram moves at least one bar lower,
creating a red bar. A new buy signal can then be created after three more consequtive
higher (green) bars.
 This signal is easy to spot because it requires at least one red bar followed by threeo
green bars while the AC histogram is below the zero line.
 Needless to say, you cannot have a sell if the bar is green.

3. THE AC CROSS BUY SIGNAL P119

Unlike AO, the AC histogram crossing the zero line, in and by itself, is NOT a buy signal. Then
what effect, if any, does the AC histogram crossing the zero line have on the buy and sell
signals? The answer is that it changes the number of green bars (higher highs) needed for a buy
signal. The reason behind reducing the number of histogram bars after crossing the zero line is
that the momentum is now in favor of going long and you want to get in or add to your position
as quickly as possible.

AC Sell Signals

Need to read remaining pages on AC and add to notes

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Notes from “Bill Williams Chaos Theory.pdf”

Fractals

AO
Awesome Oscillator (AO) determines market momentum (the second of five market dimensions)
at a given time on the last 5 bars, comparing them to the momentum on the last 34 bars.P5
Never buy on a red histogram bar and never sell on a green one. If an “unfriendly” histogram bar
occurs before the execution of a pending order, which was placed in the direction of the
Awesome
Oscillator signal, the signal has to be ignored and the order has to be deleted.P8

AC
Acceleration / Deceleration Oscillator (AC) measures the acceleration and deceleration of the
current momentum (the third market dimension).

We never buy if a histogram bar is red and never sell if it is green.P10

Zone
When both the momentum (Awesome Oscillator - AO) and acceleration (Acceleration /
Deceleration
Oscillator - AC) have the same direction (both green or red) this means that the momentum is
accelerating in the favorable direction (green=very bullish and red=very bearish). Such a
situation gives an opportunity to create the Zone (the fourth dimension)P11

Balance Line trades is the fifth market dimension.P12