Bill Williams and "Trading Chaos": Alligator, fractals and the AO
Bill Williams was a trader and psychologist who applied chaos theory to the markets: to him the market isn't an orderly machine but a non-linear system you must read across several "dimensions" at once. His system, famous in the 90s and now almost forgotten, combines five of his own indicators — the Alligator, fractals, the Awesome Oscillator, the Gator and the MFI — to enter only when several pieces line up. Here's each one and how they fit.
By the TradingCalculator.Pro team · Updated on · About us
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The idea: the market as chaos
Williams argued that trying to predict the market with linear logic is useless: it's a chaotic system ruled by apparent disorder. Instead of predicting, he proposes reacting to the real structure by reading five "dimensions" (trend, fractals, momentum, acceleration and value zone) and acting only when they align. His indicators are the glasses to see each dimension.
The Alligator
These are three smoothed averages shifted into the future: the jaw (blue, 13 periods), the teeth (red, 8) and the lips (green, 5). When all three intertwine, the "alligator sleeps": range market, don't trade. When they fan apart, the alligator "eats": there's a trend and you trade with it. It's the first dimension: where the trend is.
Fractals
A fractal is a simple 5-bar pattern: the middle bar has the most extreme high (or low), with two lower bars on each side. It marks a market pivot and a possible signal: an up fractal broken above (with the Alligator open) is an entry. They are the system's "signals", always filtered by the alligator's trend.
The Awesome Oscillator (AO)
The AO measures momentum by comparing two averages of each candle's MIDPOINT (5 and 34 periods) instead of the close. It's drawn as a green/red histogram around a zero line: green when momentum grows, red when it fades. Its classic signals are the "saucer" and the zero-line cross. It's the momentum dimension that confirms or contradicts price.
Gator Oscillator and MFI
The Gator is a histogram that visually sums up when the Alligator sleeps or wakes (the alligator's phases). The MFI (Market Facilitation Index) measures how much price moves per unit of volume, and combined with volume it classifies each candle into phases (green, fade, fake, squat) showing whether the market "facilitates" the move or not. They are the acceleration and effort/volume dimensions.
How the system is used
The logic is layered confirmation: first the open Alligator defines that there's a trend; then you wait for a fractal break in that direction; the AO must agree (momentum in favour); and the MFI/volume ideally confirms the move has strength. Only when several dimensions coincide do you enter. It's a complete, disciplined system, not a loose indicator.
Limits (honesty)
With five proprietary indicators, the risk is overfitting and paralysis: it's easy to clutter the chart and find excuses not to trade (or to overtrade). Everything is based on averages, so it lags, and today it's a little-used system versus simpler approaches. The "chaos" part is more an inspiring metaphor than hard science; take it as a visual framework, not a magic formula.