Strategies That Changed The World of Trading: Trading Chaos by Bill Williams (part 1)

Trading Strategies That Were a Revolution: Trading Chaos by Bill Williams (part 1)

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Welcome to our blog! This post starts the series of publications devoted to the theories, strategies, and methods that once changed the evolution of trading on financial markets.

If we do not change the direction, we will likely return to the place we started from.

Chinese saying

These words went as a preface to the book by Bill Williams "Trading Chaos: Maximize Profits with Proven Technical Techniques" published in 1995. For many traders, the publication of this book was the moment of changing the old paradigm of trading, understanding, and interpreting the market, understanding the trader's place on the market and right behavior in trading.

The book was a present to those who decided to become the cream of the trading world regardless of their previous failures and successes.

The author Bill Williams explained his Theory of Chaos — a new look on the market. A look not on a random wandering of prices and opinions but on a highly organized order.

Sometime later, the system got the name Profitunity System. The approach will allow to get rid of the psychological pressure on the trader, of the strain, the dying of neural cells, and deplenishing of the account. Understanding the market, the trader can control their emotions and actions and the situation on their trading account.

Who is Bill Williams?

Who is Bill Williams?

In different sources, you can find that Bill Williams was born in either 1928 or 1932 in an ordinary American family. At school, he was a quiet and calm kid though he used to put out theories and try to prove them. After school, the parents wanted him to learn at the Church college and later become a priest, but the lad chose the university, where he met his friend and fellow trader called Rodgers. He got the young man acquainted with trading and the exchange. As early as the first year of the university, Rodgers worked at one of the New York exchanges, earning a substantial profit. Every day, his friends discussed the situation on the world financial market, and Bill became more fascinated by the idea to become a successful professional trader.

After graduation, Bill and his girlfriend get married and leave for another town. He keeps working at the exchange, bringing his skills to perfection. But neither business literature nor other trading skills helped him reach the desired level of income. Soon, he started investing more than earned on selling stocks, and the financial situation in the family worsened. At a certain point, he wanted to quit trading, but his wife insisted on his taking the business in his hands and thinking by his own brain.

Step by step, Williams starts creating his own method of analysis and trading, based on his own experience, knowledge, mathematical calculations, and intuition. His career starts developing steeply. Williams writes a Ph.D. on stock markets. In 1995, he decides to publish the book "Trading Chaos". In the book, he talks about his own theory, according to which the market is a highly organized chaos, and to make a profit you do not only have to account for various types of analysis but also understand the very structure of the market. The strategy by Bill Williams became a bestseller and an informational bomb that brought Williams lots of fans all over the world.

Later, the world saw "Trading Chaos 2". After the great success of his books, he becomes an official consultant of various American banks and hedge funds. Also, he founded the Profitunity Trading Group that is still teaching and consulting beginner traders.

"Trading Chaos". First edition

"Trading Chaos". First edition

In the first book, from the very beginning, Williams makes the brain of beginner and experienced traders clash with the market reality. Moreover, according to him, the reality is that most traders treated the market as a problem. In other words, the attention was paid to the wrong interpretation of the relationship between the market and a trader. The very essence of the problems was in the trader's psychology.

Even when progressive technology entered the market, the appearance of computers, indicators, and the Market Profile the problem was not gone, it just changed the shape and move to additional instruments.

Most often, trading was interpreted as a pseudo-intellectual science, or a pseudo-scientific intellectual game, in which the profit was directly connected to the intellect of the trader. However, in reality, trading is anything but an intellectual effort. Knowledge is not the only way to successful trading. What also plays an important part is the health conditions, especially the stomach or heart. Intuitive and harmonized coincidence of the trader's interests and the market interest will bring more profit than pseudo-scientific and high-brow theories. The book headed the trader for common sense and the right view on trading.

Trading should be not a difficult but a profitable thing.

Bill Williams

He told to get free from the nets of eloquence, and behind them you will find some all-time truths that will make your trading rather easy. The problem with the truths is that they are neither sentimental nor romantic. The truth is reality, pragmatism, and wit. Williams told the traders to learn to be independent in trading.

The structure of the book you should study

The first part of the book describes the reasons for 90% of the traders to fail.

The second chapter describes the simplicity of the structure of the market and its functions. Each market in the world is meant for rationing or distributing a limited amount of a certain good between those who desire it. Every second, on the market there is set the fair price and an absolute balance between buyers and sellers. The market is the first one to feel the breach in the balance, and we are to catch the moment and move along with the market.

In the third chapter, there is a detailed description of the logic of the chaos theory as a model of the highest market organization. It is explained why it is wrong to use the logic of linear statistics in the non-linear market environment.

The fourth chapter describes the key to the right behavior on the market, as well as its main and invisible structure that explains the trader's behavior. Here, we get to know that, as a river does, the market move along the way of the least resistance, and the way, in its turn, is defined by the shape of the river bed. And also, one of the main trader's mistakes was spoken about: this is attempting to change the market, not the direction of the position.

Five steps of trader's evolution

Five steps of trader's evolution

Starting from the fifth chapter, Williams suggests evolution maps for the development of any trader from a beginner to an expert and a list of instruments for using at each level of preparation. Here, the requirements to the beginner trader are enumerated. Their aim and skills are focused on trying not to lose money, gaining experience. The instruments of a beginner trader are: daily price levels, the volume, MFI, Profitunity windows, and the Air Bag.

Then, Williams specifies the requirements for an advanced beginner. The aim of a such trader is to make a regular profit on one contract. The instruments are: Elliott waves, fractals.

At the third level, the trader becomes competent. At this step, they must maximize the profit from each investment. The instruments here are: the Profitunity Trading Partner and Profitunity Trade Planning. At the third level, you gain the ability to make an instant and exact evaluation of each market.

The fourth level, compared to the previous ones, can be called a quantum leap. At this level, the trader becomes skillful. The aim is to trade not a good or the price but their own set of beliefs. The instruments are: the left side of the brain, heart, right side of the brain (brain telegraph).

On the fifth level, a person gets to the realm of chaos, becoming an expert. The aim is to trade the state of mind. The instruments are your own states of mind (biological software). At this level we realize that our main task is to find out who we are. At this level, trading becomes a stressless game in the best sense of the word. What we could call a coincidence the first three levels is, in fact, the result of our insufficient understanding of the essence of things. The trader feels like they float along the river, making their all wishes come true.

Instead of a summary

In the next part, we will get to know how to make a trader of an ordinary person. We will discuss how to become a beginner trader, how to move forward to an advanced beginner, and further. But this is not it. We plan to discuss the second edition of "Trading Chaos" in which Williams describes the tactical elements of a trading system, all indicators, and his money management system. Stay tuned not to miss it all.

See you soon!

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