On the merits. The alligator is a combination of Balance Lines that use fractal geometry and nonlinear dynamics. Blue line (Jaw Àëèãàòîðà) figure - is a Balance Line for the timeframe that is used to build the chart. The red line (Teeth Àëëèãàòîðà5) - is a Balance Line for a significant timeframe on the order below. Green line (teeth Àëëèãàòîðà6) - is a Balance Line for a significant time period, by another order below. Lips, Teeth and Jaw of the Alligator show the interaction of different time periods. The market trends can be identified only for 15-30 percent of the time, we want to follow them and refrain from working on markets that fluctuate only within certain price periods. We found that the alligator can be a good manual. When all three lines are intertwined, alligator asleep, and the market is moving in a certain range. The market takes back what we have earned during the changes of the past trend.
the Purpose of the Alligator is to:
1. To provide an integrated approach for the monitoring of the driving forces of the market;
2. Present a simple indicator for trading only in the current trend;
3. Create a protective agent in order not to lose money during the movement of the market, limited price corridor.
So, what is our basic strategy: we want to wait to trend confirmed create fractal, which is placed above/below the Alligator's Mouth (fractal signal will be explained in the next Chapter). Ideally, but not always, all five rises (or falls during a downward movement) must be on the same side (above purchases and lower sales) Blue Balance Line (Alligator's Jaw). We consider the fractal as the moment of our first login, then moving in that direction during any of the signals of the five dimensions, including transactions in the zones.
We put our first Stop to Exit () is not a "Stop and reverse") directly inside the Alligator's Teeth (Red line), using the Stop only on close" to day interval and Stop only on close" to close the bar a different time patterns. If the market is moving in our direction, we track stop once we got five successive bars of the same color.
ANATOMY of an ALLIGATOR
a Full explanation of the Balance Line - what it is and how to use it, will be presented in Chapter 8. Essentially, the Blue Line of the Balance sheet is line rates, which would be correct, if not received new information. Original calculations for the Blue Line of the Balance sheet were made mathematically using a super-universal computing machine. It was built by drawing on the 13 - period smoothed moving average, which has offset by 8 bars into the future. I repeat, we will call this the line of the Jaw of the Alligator.
Alligator's Teeth is the Balance Line for the timeframe that is one order of magnitude below.
Computer shows the exact time period (approximate ratio of five to one). If the blue line built for diurnal values of the Red line (Teeth) built for time values. The red line to be built with the use of 8-period smoothed moving average, which has offset by 5 bars into the future. The green line (Alligator's Lips) is characterized by time period even lower order. She built like a 5 PE-ðèîäíàÿ smoothed moving average, which is offset by 3 bars into the future.
Thus, our design is as follows:
the Blue line - 13-period smoothed moving average, offset by 8 bars into the future.
the Red line 8-period smoothed moving average, offset by 5 bars into the future.
the Green line - 5-period smoothed moving average, offset by 3 bars into the áóäóùåå.9
These averages are calculated on most machines, ensure the receipt of market data.
Model fractal simple. The market moves in one direction or another. After some time buyers, who are ready to make a purchase, it produced the time of the upward trend), and market experienced rolled back due to a lack of buyers. Then the traders begins to affect some new information (Chaos). A new stream of purchases and the market, seeking a place mismatch of values and harmony in the price moves up. If the driving force of the market (momentum) and power of buyers are large enough to overcome the preceding fractal up, then we can put an order to buy so, to make a good deal for the price exceeding one minimum price fluctuation (tick) maximum fractal. Let's examine some of the typical model of a fractal.
in The image you see an idealized diagram of a fractal in the Model "A". The technical definition of a fractal is a series of at least five successive bars, with the highest high and behind him are two bars with lower highs. (The opposite configuration corresponds to the fractal for sale). One way to visualize this is to pull a hand, fingers extended with the five fingers, and your middle finger pointed upwards. Your fingers are the five successive bars, and your middle finger is the most high, forming a fractal. In fractal up we are interested only in the highest values of bars, and in the fractal down interest only minimum values bars. It is important to note the following limitations:
1. If the current bar has the same value on the top of that and the average, the highest bar, then he is not considered one of the five bars, necessary for formation of fractal. For the purchase of a fractal you have to have the most, which was preceded by two lower highs, and be followed by two lower highs. For a fractal to sell you must have at least one, which was preceded by two more high-wage, and followed by the two higher wage.
2. Fractals up and down, can include the same bars. The same bar can be part of a fractal up and fractal down.
note how the Model "In" meets all requirements for a fractal. The previous two and two follow-up the fractal can be of any maximum whose tops will not be higher than the average bar (finger). Besides, the model "In" is a fractal both upward and downward, as the two preceding the bar and subsequent both bars are internal bars, when compared with the average bar of the fractal.
Model "C" shows a different education, which creates the fractal upward and downward ones. As shown here, these fractals can "include" in the same bars. Model "D" requires six bars, to form a fractal up, because the fifth bar has the same height as the previous the highest peak. To emphasize the above, again here we repeat the working definition:
Fractal must have two previous and the next two bars with lower highs (higher minimums when a downward trend). For the purchase of a fractal we are only interested in the maximum values of bars. For a fractal for sale we are interested in only the minimum values bars.
Fractals tell us a lot about the "phase space" market behavior, but we can improve our trade, knowing how to change the behavior functions of the fractal when the market shifts from a maximum to a minimum and back. After the fractal is formed, it will always be a fractal, but the role he plays, depends on its place in relation to the Alligator's Mouth. shows fractal buy and sell fractal. If the buy signal is above the red Line of Balance (Alligator's Teeth), then we would put a stop order to buy one minimum change in price above the maximum of the fractal up. If a sell signal is below the red Line of Balance, we would put a stop order to sell at a minimum price change is below the minimum signal fractal down.
it is Important to understand that we will not pay attention to the fractal signal to buy, if, when he is overcome, the price is below the red Line of Balance. This is the best method to filter out non-profit fractal transaction, which is known to us.
After the fractal signal has been created and is in force, which is determined by its position beyond the Alligator's Mouth, it remains a signal until it gets attacked, or until then, until a more recent fractal signal.
figure shows several fractal models. Buy fractal is at the top and the sell fractal at the bottom. Remember that although the formation of a fractal can be started, it should be filtered using the Alligator. In other words, you should not close a buy transaction, if the fractal is lower than the Alligator's Teeth, and you should not close a sell transaction, if the fractal is higher than the Alligator's Teeth.
figure gives an overview of the characteristics of the fractal. The main market structure is the Elliot Wave and the core structure of the Elliott Wave is a fractal. If the trader is able to correctly identify the place of fractals, this allows him to make profits by trading with the help of the Elliott Wave, not Caring about what wave is currently the market. Fractal marks always a change in behavior as a result of new information (Chaos). Fractal always is a sign of a breakthrough. Do not worry, now that you buy on a maximum, and then sell the minimum (in other words, are in the worst place in the world trading position, at the risk of incurring maximum losses). In later chapters you'll see how to get out of this disadvantage, going, as we call it, "the realm of low rent".
what happens between The Fractal up and Fractal down is always "Elliott wave of a level;
Fractal always means change in behavior is recorded as a sequence of five bars, where the Central bar (or group) has higher MAXIMUM for FRACTALS UP and lower low FRACTALS DOWN.
One way to trade using FRACTAL is the following: if the market overcomes external extreme MAXIMUM for a FRACTAL UP or at LEAST for a FRACTAL DOWN, head towards the external orientation/Fractal point.
Trading strategies that can be built with the use of fractals, quite a lot.
Entered with a light hand of Dr. bill Williams definition of a fractal (bill Williams «Trading Chaos» and «New Trading dimensions»,) is used to identify the market model, pointing to the likely direction of the development rates, as far as is known, causes violent disputes among traders and analysts. Many deny the possibility of the effective use of this formation for practical use in trade. Their opponents point to the fact that it is one of the most qualitative tools for assessing market in the short term, what can be said about other ways of estimates of price prospects. Who is right? Try to understand this issue.
talking about the structure of the fractal model, which can be defined as the «recursive model» (which is more correct from the point of view of mathematics, describing it in its formal language), to pay attention, that we have nothing as usual oscillatory movement has received different names, depending on the author, who has devoted my attention to it: «the Market range», «Swing», «Oscillation», etc. in the Understanding of this fact is the cornerstone in understanding the principles of work of the fractal and ways to use it. Despite the different methods proposed by different researchers, it is easy to find similarity of approaches of work with data market models, which can be divided into two large groups. First get the «strategy for a breakthrough», causing the stance towards a planned or occurred price momentum, and in the second - «strategy of correction», built on the use of corrective movement. However, the orientation of the one or the other approach does not cancel the other, and one strategy may be gradually transformed into the other, or both are connected in a single paradigm. By and large, their distinguishes management positions and logged in position and out of them.
a break-through Strategy usually use the login procedure involving the use of stop orders is to be triggered after the price pre-determined level, where there is an identification of a recovery in the market situation from the previous price range. Precisely this concept and adheres mentioned previously, Dr. bill Williams, offering to enter the market after the new price tops (long positions) or new lows (short positions). Method of identification is based on determining truth fractal formations, where the fractal up is identified, if there is a number (at least three) rising peaks and after reaching the local maximum, the tops of the bars show the successive decrease (also at least two bars). Thus, the model together requires a minimum of 5 bars, a Central one of which has a local maximum (fractal up) or minimum (fractal down).
Cancel fractal that can be defined as the falseness of, or inability, failure, is determined through a comparison of bottoms or tops of bars, but sometimes you can use and closing prices. In this issue easily detect discrepancies that generates íåäîóìåííîñòü many are trying to master this tool. It is believed that if the grounds bars right side of the model, forming fractal up, dropped below his left component, which is the Central dividing strip bar, fractal model promises to be a forgery. Similarly, but in mirror works and fractal down: top of it right parts shall not exceed maximums left...
In case of such formations can speak about the quality of the model, defining it as «perfect». They really such is indeed the case, including those profits that arise in their application as a signal for entering a position. The problem is that such models are not so often, and in addition are usually formed only stable and well-established trend, when the need for them is not so high. The second difficulty is that the market are rarely found the perfect situation, and more often there are complex, hard recognized by the oscillating movement.
Attempts to overcome the problem of identification of a fractal (he's true or false) are observed in the strategies of correction. Their principle is about the same: enter the position should be at the occurrence of a correction from the previous impulse movement, entirely fit in the left part of the fractal formation. Usually featured (and indeed widely used) values are based on Fibonacci numbers - correction 0,382 (38%); 0,50 (50%); 0,618 (62%). Some practice such values as 0.25 (25%) and 0.75 (75%). The trading from the levels defined in this way is usually carried out using limit orders. This assumes that it is on them that the price will be supported (for the emerging fractal top rolled down) or resistance (fractal down upward correction).
In versions of this method is used roaming stop order tracking opposite extreme of the last or the last but one bar. Stop orders to buy in evolving fractal up is placed on top of (or slightly above) last fully formed bars. Stop orders to sell are appropriately applies to trade with fractal down, tracking the Foundation of the last bars. The idea is simple: as soon as the movement of change, the stop order will be executed, ensuring the occupation of positions in the new direction of the market...
This decision at first seems just remarkable, because no matter how true or false emerging fractal, - in any case, a trader takes a position in the right direction, let it be very brief, if not one «but». Its essence is that modern markets emotionally rich environment, that is reflected in the numerous mishaps» one way, then the other side of the market. To verify this, just consider any of the graphs in the form of candlesticks, where clearly visible «shadow», which are a real scourge of the trader. Reason for them in the modern world is clear: new technologies for online transactions and Electronic Network (direct access) provided by an investor as free access to the market, as its institutional participants.
How to be in such difficult and confusing maze of additional conditions, which you must enter to use fractal for practical trade? Yes and in General, can we rely on him, if the market behavior of increasingly baffled, forcing constantly revise the recently seemed so firmly true opinion? Putting aside personal preferences and desire to embellish or Vice versa - to diminish the value of a particular approach to the assessment of the market and work on it, we can firmly say: the truth is in the middle, and the results are determined êà÷åñòâåííîñòüþ analysis and a full understanding of the current market situation. In addition, much determined by what principles based capital management, guidance taking profits in successful transactions and losses during erroneous actions.
What is the path prefer when choosing the method of entering into a trade: buy through a stop or limit, is a purely personal matter for each trader. Usually here much depends on the specific situation on the market, so universal rules to develop difficult, especially because of the many reservations and conditions arising in each case. As practice shows, confident traders use limit orders, placing them on the substantial levels of support based on the above principles (calculation of corrections on of Fibo-levels). More cautious prefer a stop order, placing them just above the last vertex (for a breakthrough to the top - stop-buy orders) or below bases (stop sell orders)...
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