eWaves vs Bill Williams traditional AO/AC

[Dave]

Hi,

This is probably a question for Steve or Immy or someone who was involved in the coding of the eWave indicator (I personally have zero coding ability so please forgive me if this is a simple/obvious or even an impossible question).

I've been doing some reading of New Trading Dimensions and find interest in the aggressiveness of Bill Williams' add-on methods, particularly when his AO and AC oscillators show increasing momentum and acceleration. I know that this can be read from the eWave by simply comparing the colour/height/direction of each new eWave bar, but I was wondering how closely this represents the information provided by the AO and AC. I ask this mainly because instead of two separate oscillators the eWave combines the AO and AC into one, so naturally will slightly differ. For all I know the eWave indicator takes into account both of these original indicators almost exactly and can be interpreted as an accurate display of both.

The add-on method for trades that are in profit and moving away from the alligator is to buy on the close of the bar if that bar exceeds the high/low of the previous bar AND the AO and AC are continuing in the direction of the trade and are both the correct colour. i.e. for a buy add-on, after the initial entry is triggered using the traditional sleeping alligator and break of fractal method, when the current bar closes higher than the previous bar and the AO and AC are increasing and are therefore both green you add. So can this be interpreted as meaning the same as when the eWave is still increasing and light green it is suitable for an add-on.

For example, with reference to the M5 EURUSD chart, at 2045 (UK time) on 19/12/12 (please feel free to skip this bit if it's boring) there was a setup 2 following the break of the lower AIMS box and the pink dot candle, and then the forming of the new fractal, so initial entry on 2115 candle, and then management as follows:

- add on at close of 2115 candle (lower close than previous candle, decreasing eWave still bright red);
- add on at close of 2140 candle (lower close than previous candle, decreasing eWave still bright red and break of fractal);
- add on at close of 2145 candle (lower close than previous candle, decreasing eWave still bright red);
- add on at close of 2150 candle (lower close than previous candle, decreasing eWave still bright red);
- add on at close of 2200 candle (lower close than previous candle, decreasing eWave still bright red);
- add on at close of 2210 candle (lower close than previous candle, decreasing eWave still bright red);
- add on at close of 2215 candle (lower close than previous candle, decreasing eWave still bright red);
- no add on at close of 2220 candle as close is not lower than low of previous candle;
- no add on at close of 2245 candle as the eWave does not have two consecutive decreasing bright red bars (the add on is considered valid only after two bars, one bar is the signal, the second is the confirmation) but add on is available on break of fractal;
- and let's just assume the close of all entries was on the black diamond at 1.3209 as there were no more valid entries. Even if trailing AIMS levels the spikey green candle wouldn't have quite triggered a stop.

So this single move would have had an initial entry and 8 add ons for a total of 9 positions and 118 pips when the original entry would have given 29 pips (29+22+21+19+15+15+9-3-9).

I know this is a very aggressive way of adding on (and New Trading Dimensions says to stop adding on using this method after 5 consecutive bars of the same colour as a correction would be expected) but I have a very strong belief that adding to winning positions is the key to being a profitable trader, and by using this approach just one 30 or 40 pip move could add in excess of 150 pips, and if you get just one of these a week and the rest of your trades just end up equaling out to break even then you're in a very good position.

So anyway, I guess my question is, how can the colour of the eWave indicator be interpreted when comparing it to the colour of the traditional AO and AC oscillators for the purpose of continuing momentum and acceleration?

Thanks, Dave

[Dave]

I probably should have included this in the original message, but a comparison of the same move using the AO and AC as signals for the add ons gives the following results:

- sell trigger at 2115 on break of fractal;
- add on at break of fractal from 2140 candle;
- add on at close of 2200 candle (lower close than previous candle, decreasing AO and AC and 2 or more consecutive red AO/AC);
- add on at break of fractal from 2245 candle;
- close of all entries when price closes back inside the alligator's mouth, same close.

So this would have resulted in about 46 pips (29+21+15-9), a significant difference. Maybe this means eWave is superior in assessing the continuation of a trend's momentum/acceleration? Food for thought.

Dave

[Den]

Hi Dave,

Thanks for your post. I also am looking into agressively adding on. I will study your question with interest. I know that there are times when you can go in hard. Im studying 'when' and getting close to when you can safely be in tune with the market makers. When I find it I will share, unless Steve can code it )

[immy]

Hi

I have not alot to say but this. I've done all that and come up with AIMS V5.1!
The perfect add on is when you trade S1 and add on on S2. One add-on on M1 is enough and possible. More are very rare. But on m5, upto 3 addons are possible. Its an interesting topic, but I've done all that and I don't do that anymore. all my m1 entries, are in fact Bill's add-ons on m5. I hope this makes sense. So when gators on m5 are open I keep taking S1's in that direction. I've done extended research and found that all fractal breakouts on m1 are either one of the add-ons on m5 as per Bills strategy. I hope this also makes sense

Cheers

[snorm]

Hi Dave

eWaves is basically the AO indi - all I've done is to add wave counts and target zones to it, along with a few other bits and bobs of course. eWaves doesn't incorporate AC in any way.

So what you see in terms of eWaves value is the same as the traditional AO value.

Hope that makes things easier

cheers
Steve
:-B

[Dave]

Thanks Den, Immy and Steve for your comments.

I suppose when you break down a larger move into a smaller timeframe then the add on entries will always be on the break of fractals. I'm going to do some research and testing over the Christmas break and will do some testing in the new year on micro lots - see what happens with very little risk. I was just running the forex strategy tester on EURUSD M5 and with add ons on an increasing eWave and a higher candle close a 50 pip move was multiplied into 200+ pips..... amazing! I know though that when it turns against it can be a big loss but I suppose keeping those losers as small as possible and hitting the home run occasionally will keep us in the green overall.

One last thing too for Steve while you're around, do you have/know of an audible alert or pop up for cross of zero line on eWave? I found one here (http://codebase.mql4.com/6107" onclick="window.open(this.href);return false;) that works on the AO, and I like that it gives a pop up window with pair and timeframe, but it requires an extra window to show AO, so showing the same thing as the eWave, and I hate a cluttered chart!

P.s. Merry Christmas to everyone, cya all next year!

Thanks, Dave

[snorm]

I have a version of eWAVES with AO cross alert - drop me an email (you should have that from your original purchase) and I'll send it you you as a Happy Christmas prezzy

[immy]

Let me tell you something more about the cross of ZL alert. The whole strategy is based on this cross of ZL. The Fresh Cross of ZL is THE important thing for me. Thats the secret behind the DOTS!

AIMS Entry Alert V1 was actually that, the 5/34 SMA cross, in other words AO cross of ZL alert. Then after some research I concluded that it would be better to have a cross of ZL of 3x lower time frame AO. Because this would give us an earlier alert. So I came up with AIMS V2.1 which was 2.13 SMA cross over. I arrived at those figures because in order to count waves of lower time frame I had created an AO that I called the V3 AO. It was based on 2/13 SMA instead of 5/34 SMA. And so to get Cross of ZL of V3 AO, the 3x lower time frame AO, all I wanted was an alert with a Dot to show that 3x lower time frame AO had crossed ZL. So we did not need to display 2 AO's.

Then Steve came along, by then I had found that the blue line is roughly similar to 34SMA and price crossing Blue the Balance Line or price crossing the 34SMA was nearly the same thing. So Cross of ZL of current TF was similar to Blue Line and since Green line is the balance line of 3 or 5x lower time frame, all we needed was a cross of Green line alert and that would give us Fresh Cross of ZL of an AO on a 3 or 5x lower time frame as well as the information that price has eitehr entered or got out of Gator's mouth. Killing 2 birds with one. We had observed that the 2/13 V2.1 entry alert coincided with cross of green line. It was never the intention but it happened that way. So the dots gave us even earlier alert than AO cross of current time frame or of V2.1. So here we are with the Dots and its colours. It can be said the "The DOTS are the AO cross over of 3x lower time frame". The Dots are actually Cross of ZL alert of 3-5x lower time frame. You can check it on your charts.

So now, if you add a cross of ZL of current time frame that would be like putting two Dot Alert Indicators or adding two AO crossover indicators.

All IMHO and I hope it makes sense.

Merry Christmas To Everyone!

I hope you all have a great one and lots of love and happiness for you and your friends and family! cheers

[Dave]

Thanks Steve for your offer - I've sent you a PM.

And Immy, thank you for your very detailed response, it all makes perfect sense!!! :-B

It's amazing how often when we compare these crucial lines/crosses/alerts that they align over different time frames. Looking at the charts too it's very often that the breakout of the AIMS box following the dot is just one bar before the actual cross is confirmed, so the alert for the cross of ZL may in fact often be one bar too late - like you said, the dot gets it slightly earlier.

New Trading Dimensions talks a lot about the direction of the momentum of the AO/AC, so suggests that if we have eWave bars moving in the correct direction (approaching ZL) but they haven't in fact crossed just yet then the momentum is still in the right direction and conditions favourable for an entry given other factors align. Anyway, I'll have a play around with Steve's indi over the break and see what happens. I just need to cool my jets a bit as I probably won't be back looking at live markets until 7 Jan.

Enjoy the holidays everyone!

Dave

[immy]

A Bit more on the AO or AIMS Wave!

Below you'd see red and blue lines. Those are the Simple Moving Averages used for calculating the AO. If we plot those lines on the chart, we have the essence of AIMS Wave / AO on the chart. So why the Histogram. The purpose of the histogram is to show us the distance between 5 sma and 35 sma. This would then graphically show us the momentum of the market.

22-12-2012 14-40-27.png

Now the AC Calucation Method.
The AC histogram charts the difference between the Awesome Oscillator or AO and a Simple Moving Average or SMA of the AO taken over five periods. In this case, the AO is calculated as the difference between the 5 and 34 period SMAs of the Median Price observed for those periods.

Just like I displayed the AO on the chart using the Red and Blue Lines, we can display AC on the AO using a 5SMA. If we did that, it would look like this.
and You'd see that the AO shows the momentum of the market where is the AC shows the momentum of the momentum. In other words, it shows if the momentum is still increasing or has it started accelerating in the opposite direction.

ACAOofAO.png