Bill Williams' 'Balance Line'

Hi,

It's been a while since I contributed an actual SYSTEM here (well other than posting links to various trading systems that is) so I thought I'd post this little one 'just for fun' (and WOULD YOU BELIEVE that it actually appears to work for forex pairs)!!! LOL!!!

Many of you will have heard of Bill Williams (his 'claim to fame' is the 'Profitunity Trading System' or 'Trading Chaos'). What many may NOT know is that Bill Williams has, in fact, released these systems three times in three seperate books. Now a long time ago: I was 'playing around' with this stuff and in the very first book (which in my opinion is definitely the better and far more detailed than the other two) he talks about the 'Balance Line'. The parameters for this line were apparantely tested and tweaked by some 'supa dupa' mainframe computer and apparantely produced good results. Now the ACTUAL 'Balance Line Trades' to me are just a tad too complicated so I came up with this little 'variation'. By the way: the 'Balance Line' is nothing more than the 'Alligator's Jaw' (you have an entire Bill Williams section of indicators as standard with MetaTrader of course).

Simple to set up: choose your timeframe (I'm messing around with this on a 1 hour chart but it appears to work for all timeframes i.e. it just depends on how patient you are I guess). Attach the 'Alligator' indicator with default settings BUT HIDE the 'Teeth' and the 'Lips' (just change their display colors to 'None'). Now you are really only seeing the 'Alligator's Jaw' (which, as noted, is in fact the 'Balance Line').

Now: I would also suggest that you trade IN ONE DIRECTION ONLY (but that's up to you of course i.e. I only trade long anyway).

Simple: to enter you go long at market when the price closes on or above the 'Balance Line'. You initial stop is the low of the entry bar minus 'a couple of ticks'. You stop stays in place until either it is executed and you've been stopped out OR once the 'Balance Line' starts to lock in profits and only then do you move your stop. In addition: you will note that the 'Balance Line' is 'offset into the future' by eight bars. This is handy BECAUSE once the very last value of the 'Balance Line' exceeds your entry price you move your stop to breakeven and again leave it there until the 'Balance Line' is effectivel locking in profit in which case you simply trail your stop by the value of the 'Balance Line'. One last but very important thing: if price goes AGAINST you and CLOSES BELOW the 'Balance Line' but not far enough to take out your stop THEN YOU SIMPLY CLOSE THE TRADE AT MARKET AND REALISE THE LOSS!!! A lot of the time this means that your loss is far less that it would have been had your stop been hit. One other thing that I've noticed is that many times your risk is minimal so you can pretty much 'bet the farm' as it were i.e. depending on your risk percentage (2% or 5% or whatever you use) you can normally open far larger positions which is nice it would seem.

That's it. The only reason (by the way) for my saying to trade in only one direction is simply to eliminate as many 'whipsaws' as possible. This is always a problem with most moving average type systems i.e. if you stop and reverse upon every opposite close the 'whipsaws' can be a REAL 'pain'!!!

Feel free to play around with this little system of course. You may even see something that could improve it's performance and profitability. Oh and choose your pairs carefully i.e. there are some pairs that are a real 'pain' by the looks of things i.e. they tend to trend FAR LESS than others.

OK: I shall attached chart for the purposes of explanation and you can also then get and idea why this could indeed be quite a profitable little system with pretty minimal effort really.

Regards,

Dale.

Read more: http://forums.babypips.com/free-fore...#ixzz3hGXU8YY2

By the way:

I forgot to mention some 'variations' on the above system.

For one thing: you could place orders so that when price actually HITS the 'Balance Line' then your trade is opened. This, however, may lead to problems with the trade size because at that point you don't know where you initial stop is eventually going to settle. Also: it requires that you will sit and monitor the chart all of the time so that if you are stopped out you would then place another order and re-enter.

In addition: if you are indeed stopped out but price retraces and closes above the 'Balance Line' then you simply re-enter. You MAY want to wait for a bull candle (if you're only trading long) but, of course, this may get you into the trade a bit later.

Oh and for the record: the 'Balance Line' is nothing more really than a 'smoothed', 13-period EMA, applied to the median price (H+L/2) and shifted 8 bars 'into the future'. Because of this shifting: 'what you see is what you get' i.e. unlike a 'normal' moving average the CURRENT value that you're seeing never changes.

Regards,

Dale.

Read more: http://forums.babypips.com/free-fore...#ixzz3hGXWfmHe

Oh and one last thing:

You COULD simply trail your stop at the high or the low of the preceding bar once in the trade and once you're showing a profit. Of course: you stand a chance of missing a trend but there is indeed a 'school of thought' that says to never let a winner turn into a loser. So if you're into trying to catch just a few pips or whatever then maybe this method would suit you better i.e. a close on either side of the 'Balance Line' is pretty reliable amd most times price will continue to move away from the 'Balance Line' at least for a few bars before a retracement.

You could also NOT trail ANY stops i.e. wait for a close on the other side of the 'Balance Line' in order to take your profits but this of course COULD mean that your profits dissapear if there is a huge move in price against you. This does happen frequently on the shorter timeframes so just take this into account.

For interest sake: the REAL 'Balance Line System' dictates that you wait for a second (BAR 2) to make a lower high and a lower low than the previous bar (BAR 1) and then you place an order to buy at the high of BAR 1 if price is above the 'Balance Line' (and visa versa for a short trade). But it gets a bit more complicated than this though unfortuanately.

Regards,

Dale.

try trailing the third candle back, counting the current one. Unless it's a really long candle then you may want to pull your stop in closer.

Hello,

Yep: that's also an option. There are many ways to 'skin this cat' I guess and anybody finds it interesting then I'm sure some other ideas will come to light. I don't know WHY I sort of 'designed' this little system (boredom I guess). I've always felt that Williams' 'Balance Line' theory 'holds water' excepting as I say: the REAL 'Balance Line System' or 'Balance Line Trades' is a bit more complicated and 'cluttered' hence this little variation on the theme.

One thing that DID occur to me while typing this: what about some type of filter (like a 200-period or 50-period SMA or EMA) to indicate whether you should be taking only short or only long trades??? Maybe it's possible to eliminate more 'whipsaws' (although they're not THAT bad to be honest).

I've attached a daily chart of GBP/USD. This is the KIND of trade that would be good let's face it. As I said though: the pairs need to be picked carefully because some of them are REAL 'dogs'. Something like EUR/CHF is good for this (even although it takes a long while to make money due to the fact that there is not really a lot of movement generally unless the Swiss Banks interfere)!!!

One thing that maybe should be looked at more seriously is the thing of entering RIGHT AT the 'Balance Line'. If you look carefully you'll see that in some cases even a BAD trade has the potential to break even or even make a few pips profit. In other words: you enter RIGHT AT the 'Balance Line', initial stop is the low (if only trading long) of the signal bar but then you IMMEDIATELY trail your stop from the next bar at the value of the 'Balance Line'. I've stared at EMA's and the like for a LONG time now and IF there were a way to get 'in' AT the moving average i.e. not after price has closed or whatever then your profit is represented BY the moving average itself (I'm not sure if I'm explaining myself correctly here i.e. maybe another chart will explain better).

Regards,

Dale.


Regards,

Dale.