Bill Williams Indicators

Bill Williams, a pioneering figure in modern technical analysis, introduced his “Trading Chaos” framework in the early 1990s.

Departing from the rigid trendline and pattern-based methods of classical technical analysis, Williams sought to understand markets as complex adaptive systems.

Drawing on concepts from chaos theory and behavioural finance, he emphasised the interplay between fractal price structures, momentum oscillations and market psychology.

At the heart of Williams’ methodology are three core indicators: the Alligator, which uses smoothed moving averages to identify market direction; the Awesome Oscillator, which measures market momentum; and Fractals, which pinpoint potential reversal points.

Together, these tools form an integrated system designed to capture emerging trends and avoid false signals common in traditional approaches.

About Bill Williams

Born in 1932, Bill Williams combined a background in psychology with his passion for charting to develop a holistic view of market dynamics. His seminal works—Trading Chaos (1995) and New Trading Dimensions (1998)—remain influential, inspiring traders to consider both quantitative patterns and the human behaviours behind them.

Bill William’s indicators family includes:

• Accelerator Oscillator
  This is a histogram-based oscillator that shows the rate of acceleration or deceleration of price in the market.
• Alligator
  The Alligator indicator is designed to inform traders of the absence of an underlying trend as well as the formation and direction of a new one.
• Awesome Oscillator
  The Awesome oscillator measures the momentum of the underlying trend and also helps in confirming trends as well as warning of potential reversals.
• Fractals
  The fractals indicator plots local highs and lows where the price may potentially stop and reverse, or even breakout.
• Gator Oscillator
  Intended to supplement the Alligator indicator, the Gator indicator helps in confirming trends and warning of decreasing momentum in the market.
• Market Facilitation Index (BW MFI)
  The BW MFI is intended to show the strength or weakness behind any price movement in the market.

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Awesome Oscillator

The Awesome Oscillator is simply a 34-period moving average subtracted from a 5-period moving average. Its awesomeness is that the moving averages are plotted using the median prices of candlesticks. The indicator falls in the broader category of momentum oscillators, which includes other indicators such as the RSI, Stochastics and MACD. Please read our separate dedicated guide on Awesome Oscillator trading strategies.

Accelerator Oscillator

The Accelerator Oscillator is based on the Awesome Oscillator. The indicator measures the difference between the Awesome Oscillator and its 5-period simple moving average. This means that it shows how the Awesome Oscillator accelerates or decelerates. By getting information on how the rate of price momentum in the underlying market changes, traders can determine when to take advantage of trade opportunities in the market as well as when to avoid potential false movements. Functionally, the Accelerator Oscillator will change direction before the price changes, acting as an early warning sign for momentum acceleration or deceleration.

The formula to calculate the Accelerator Oscillator is as follows:
Accelerator Oscillator = AO – SMA (AO, 5)

Where:
AO = Awesome Oscillator
SMA = simple moving average

The Accelerator Oscillator is also plotted as a histogram that prints green and red bars, and also swings above and below a zero line. A green bar implies increasing acceleration, whereas a red bar implies increasing deceleration. When the indicator is a zero, it means that momentum and acceleration are balanced. The Accelerator Oscillator is essentially a leading indicator that helps traders to eliminate poor entries. Other types of leading indicators include On-balance Volume and Donchian Channels.

Trading with the Accelerator Oscillator

Unlike the Awesome Oscillator, when trading with the Accelerator Oscillator, a cross above or below does not signify a change of market sentiment (bullish or bearish). Still, traders should place buy orders when there are two consecutive green bars above the zero line. If you wish to go long below the zero line, you should wait for a third consecutive green bar because you will not be trading with momentum on your side.  Similarly, you should place a sell order after two consecutive red bars are printed below the zero line. Sell orders above the zero line can only be placed after three consecutive red bars are printed.

Alligator

The Alligator indicator is composed of three smoothed moving averages projected into the future by several periods. The indicator is specifically purposed to ensure that traders only place their trades in optimal trending markets. It is aptly named ‘alligator’ because it mimics the feeding habit of the animal and can help traders pick out the best times to ‘feed’ on the pips available in a trending market.

Here are the lines that constitute the Alligator indicator (as well as their calculation):

• Alligator’s Jaw
  This is a 13-period smoothed moving average (SMMA), plotted using median prices, and is projected 8 bars into the future. This line is typically visualised in blue.
  Alligator’s Jaw = SMMA (median price, 13, 8)
• Alligator’s Teeth
  This is an 8-period smoothed moving average, plotted using median prices, and is projected 5 bars into the future. This line is typically visualised in red.
  Alligator’s Teeth = SMMA (median price, 8, 5)
• Alligator’s Lips
  This is a 5-period smoothed moving average, plotted using median prices, and is projected 3 bars into the future. This line is typically visualised in green or black.
  Alligator’s Lips = SMMA (median price, 5, 3)

Alligator Indicator Strategy

Complementary Indicator: Moving Average Convergence Divergence (MACD) for momentum confirmation.

Setup Rules:

1. Apply the Alligator (jaw: SMMA 13, teeth: SMMA 8, lips: SMMA 5) to a candlestick chart.
2. Overlay the MACD (12,26,9) histogram beneath the price window.

Entry Criteria:

• Bullish Entry: All three Alligator lines open to the upside (lips above teeth above jaw), indicating an emerging uptrend. Simultaneously, MACD histogram crosses above zero.
• Bearish Entry: Alligator lines open to the downside (lips below teeth below jaw) and MACD histogram crosses below zero.

Stop-Loss Placement:

• Place initial stop just below the Alligator jaw for bullish trades (above for bearish), allowing noise while protecting capital.

Profit Target & Exit Signal:

• Profit Target: Measure the distance between lips and jaw at entry, project equal distance in direction of trend—partial profit at this level.
• Exit Signal: Close the position when the lips cross back through the teeth in the opposite direction, signalling trend exhaustion.

Sample Trade:

• Instrument: EUR/USD daily chart.
• Observation: The Alligator lips (5 SMMA) crossed above teeth (8 SMMA) and jaw (13 SMMA), forming a bullish fan. The MACD histogram simultaneously printed its first positive bar above zero in three sessions.
• Entry: Buy at 1.1100.
• Stop-Loss: Set at 1.1030 (slightly below the jaw line).
• Profit Target: Calculate entry-to-jaw distance (70 pips) and project; target 1.1170.
• Exit: The lips crossed back below the teeth at 1.1150; close remaining position with net +50 pips.

Gator Oscillator

The Gator Oscillator is based on the Alligator indicator. It is designed to show the degree of convergence or divergence of the Alligator lines. The indicator is plotted as a double histogram. The histogram above zero shows the divergence between the Alligator’s Jaw (blue line) and the Alligator’s Teeth (red line); while the histogram below the zero line shows the divergence of the Alligator’s Teeth (red line) and the Alligator’s Lip (green line). Like the Alligator, the Gator Oscillator is ideal for trading trending markets, and the two indicators can be used together to complement each other. The Gator Oscillator is particularly visually appealing and can help traders identify trading opportunities in trending markets quickly and easily. It is important to note that every time period is represented by two bars on the histogram, one above, and the other below. A green bar implies that a trend is becoming stronger than the previous period, whereas a red bar indicates that the trend is becoming weaker than the previous price action.

Trading with the Gator Oscillator

The Gator Oscillator delivers trading signals using the same logic as the Alligator Indicator. The trading signals come in 4 phases as follows:

• Sleep
  Both bars are red. This means that a trend is non-existent in the market.
• Awakening
  In this phase, one of the red bars turns green. It does not matter whether it’s the one above or below. This is a signal that a potential trend is forming in the market.
• Eating
  In this phase, both bars on either side of the zero line turn green. This is a signal that a trend has formed in the market, and traders can now place trades in the direction of the new trend.
• Sated
  In this phase, one of the green bars turns red. Again, it does not matter which bar turns red. This is a signal that the prevailing trend is losing momentum. It is at this phase that traders should book or lock their profits.

Gator Oscillator Strategy

Complementary Indicator: 14‑period Average True Range (ATR) to gauge volatility.

Setup Rules:

1. Apply Gator Oscillator to a daily Gold (XAU/USD) chart.
2. Add ATR 14 beneath the price pane.

Entry Criteria:

• Bullish Entry: Both Gator histogram bars above zero (green) and expanding, ATR trending upward.
• Bearish Entry: Both histogram bars below zero (red) and expanding, ATR rising.

Stop‑Loss Placement:

• Set stop‑loss equal to 0.5× ATR distance from entry.

Profit Target & Exit Signal:

• Profit Target: 1× ATR distance.
• Exit Signal: Gator bars contract (colour change) or cross the zero line.

Fractals

Bill Williams discussed the Fractals indicator in his book ‘Trading Chaos’. The logic behind Fractals is that price action is inherently repetitive, and the indicator can help traders decipher the price patterns in play. A fractal formation in the market is made up of 5 bars, in which the third bar (middle one) represents either the highest high or the lowest low. The Fractal indicator prints arrows on these highs and lows. An arrow above a price bar is a buy fractal, whereas an arrow below a bar is a sell fractal. A buy fractal serves as resistance, but a break above it triggers a buy signal. Similarly, a sell fractal serves as support, but a break below it triggers a sell signal. The Fractal indicator is a trend following tool that is functionally similar to the Parabolic SAR.

Fractals Indicator Strategy

Complementary Indicator: Commodity Channel Index (CCI) for momentum extremes.

Setup Rules:

1. Apply Fractals (period 5) to identify swing highs and lows.
2. Overlay CCI (14) to gauge overbought/oversold conditions.

Entry Criteria:

• Bullish Entry: Price forms a down fractal (lowest low surrounded by two higher lows either side). CCI rises from below –100 back above –100.
• Bearish Entry: Price forms an up fractal (highest high surrounded by two lower highs either side). CCI falls from above +100 back below +100.

Stop-Loss Placement:

• Place stop-loss 5 pips below the down fractal low (above the up fractal high for short trades).

Profit Target & Exit Signal:

• Profit Target: Aim for a 1.5:1 reward-to-risk ratio. E.g., if stop-loss is 20 pips, target 30 pips.
• Exit Signal: Close the position when a fractal appears in the opposite direction, indicating a potential reversal.

Sample Trade:

• Instrument: GBP/JPY 4‑hour chart.
• Observation: A down fractal formed at 189.50. CCI rose back above –100, suggesting a shift from oversold.
• Entry: Buy at 189.70 (confirming momentum).
• Stop-Loss: Set at 189.45 (5 pips below fractal).
• Profit Target: 189.70 + (1.5 × 25 pips) = 190.45.
• Exit: An up fractal formed at 190.40; close position for +70 pips.

Market Facilitation Index

The Bill Williams Market Facilitation Index (BW MFI) indicator is designed to measure the willingness of the market to move the price. It is basically an assessment of how market prices react to new volume in the market. By assessing price change and tick volume, the BW MFI can give a comprehensive assessment of market behaviour and prevailing sentiment. It essentially filters out potentially false price movement to ensure that traders only take trades in ideal market conditions.

The indicator is calculated by a simple formula as follows:
BW MFI = (High – Low)/Volume

Where:
High = The highest price of the current bar
Low = The lowest price of the current bar
Volume = The volume of the current bar

Trading with the Market Facilitation Index

The indicator value is presented in the form of a multicoloured histogram, where different colours inform traders of the underlying relationship between price and volume. The colours are:

• Green
  A green bar is an indication that both MFI and volume are up. The increase in MFI implies increasing-price acceleration, while an increase in volume implies capital inflow is backing the move. This is a strong signal that the prevailing trend will continue, and traders may join the party.
• Blue
  A blue bar is an indication that MFI is up, but volume is down. This implies that the current price movement in the market is not backed by sufficient volume, and traders should look to protect or wind down their positions.
• Pink
  A pink bar is an indication that MFI is down, but volume is up. This denotes a massive bull-bear tussle that will either lead to the continuation of the previous trend, or the start of a new one. Bill Williams also referred to this scenario as a ‘squat’, and it is a signal for traders to get ready to join the winning team.
• Brown
  A brown bar is an indication that both MFI and volume are down. This implies that the prevailing trend is fading and market participants have no real interest in driving prices further. This is not an ideal market to trade in any circumstance.

The BW MFI indicator provides important market information, but traders should combine it with indicators such as Fractals or Moving Averages that will help in confirming prevailing trends in the market.

Market Facilitation Index (MFI) Strategy

Complementary Indicator: 20‑period Exponential Moving Average (EMA) for trend bias.

Setup Rules:

1. Apply Bill Williams’ Market Facilitation Index (MFI) with default 14‑period setting on a 1‑hour USD/JPY chart.
2. Overlay EMA 20 to identify the prevailing trend.

Entry Criteria:

• Bullish Entry: MFI bars are rising (increasing market participation) while price closes above EMA 20.
• Bearish Entry: MFI bars are falling (decreasing market participation) while price closes below EMA 20.

Stop‑Loss Placement:

• Place stop‑loss 10 pips beyond the most recent swing low (for longs) or swing high (for shorts).

Profit Target & Exit Signal:

• Profit Target: 2:1 reward‑to‑risk based on entry to stop distance.
• Exit Signal: MFI reverses direction (bars change colour) or price crosses back through EMA 20.

Trader Psychology & Risk Management

Trading chaos demands not only technical precision but also emotional discipline. Here we outline the mindset and risk rules vital for applying Bill Williams’ framework effectively.

Mindset for Chaotic Markets

1. Embrace Uncertainty: Recognise that markets are inherently unpredictable. Rather than forcing trades, wait for clear indicator alignment before committing.
2. Patience & Discipline: Only a fraction of setups meet all your criteria. Avoid overtrading by sticking strictly to entry rules.
3. Acceptance of Losses: View stop-outs as a cost of doing business. Losing trades offer feedback—use them to refine your strategy.

Position Sizing & Stop Mechanics

• Fixed Fractional Sizing: Risk no more than 1–2% of account equity per trade. Calculate lot size based on pip risk and currency value.
• Dynamic Stops: Adjust stops with market volatility. For instance, use ATR multiples (e.g., 1× ATR) to widen stops in choppy conditions.

Risk-Reward Management

• Minimum Reward-to-Risk: Target at least 2:1 R:R across all strategies. This ensures winning trades offset occasional losses.
• Scaling Out: Consider taking partial profits (e.g., 50%) at the first target and move breakeven on the remainder.

Emotional Control Techniques

• Pre-Trade Checklist: Confirm all indicator signals, stop levels and position size before entry. Only proceed when checklist is 100%.
• Journaling: Record each trade’s rationale, outcome and emotional state. Review weekly to identify patterns.
• Mindfulness Breaks: After a loss or string of trades, pause and refocus. Short meditation or breathing exercises can reset your mindset.

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• Demo Account. Use the free and unlimited AvaTrade demo account to test, tweak or optimise your Bill Williams strategies without risking any of your money.

Bill Williams Indicators main FAQs

• What is the purpose of the Alligator indicator?

  It helps you spot when a new trend is forming by using three smoothed moving averages to show when market “teeth” start to open.
• How do Fractals indicate when to enter or exit a trade?

  Fractals mark potential reversal points on the chart; you enter when the price breaks the fractal signal in the trend’s direction and exit when an opposing fractal appears.
• Why use the Market Facilitation Index (MFI) alongside a moving average?

  MFI shows if market participation is rising or falling, while a moving average confirms the overall trend to avoid false signals.
• When should I close a trade using the Gator Oscillator?

  Close your position when the Gator bars contract or cross the zero line, signalling that the trend is losing strength.

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