BW Zone Trade Indicator

The BW-Zone Indicator is a nice indicator that attempts to visually explain Bill Williams’ fourth dimension of chaos theory. Williams is a well-known trader and analyst who has created numerous indicators. His most well-known trading strategy mixes trade psychology and chaos theory. Chaos theory is a mathematical concept that asserts that unpredictability can occur in conventional (deterministic) equations. According to trading theory, the market moves in unpredictable ways.

What is the BW Zone Trade Indicator?

Bill Williams’ zone trading indicator, modified. Unlike the standard Awesome Oscillator (AO) and Accelerator Oscillator (AC), this indicator allows you to set the calculation price and period for the fast and slow MAs used in the AO calculation, the smoothing period and method for the AC calculation, as well as the filter type – using both indicators or any of them separately.

Setting up the BW Zone Trade Indicator
Setting up the BW Zone Trade Indicator

BW Zone Trade Strategy

In his approach to trading with chaos theory, Bill Williams identifies five market dimensions that all build on one another. This means that when all of the dimensions are aligned, you receive the best and safest transactions. Fractal, Momentum, Acceleration / Deceleration, Zone, and Balance Line are the dimensions.

The fourth dimension is known as Zone because it seeks to align the preceding two dimensions. When both the Awesome and AC oscillators have the same color for at least two consecutive bars, a zone is formed. Because momentum and acceleration agree on the market situation, these zones generate excellent trade chances. As you can expect, identifying these zones is the most crucial task, because trades in the zone yield the best results. This is where the BW-Zone Indicator comes in, displaying the zones in a very user-friendly manner.

Buy Signal

The following could be your checklist for a buy trade:

  • When the asset being traded is up trending.
  • When the indicator paints a green bullish candle in a bullish trend.

Once these events occur:

  • You could open a buy position after you confirm your entry with bullish candlestick patterns.
  • You could set your stop loss just below the nearest swing low.
  • You could set your take profit at the nearest resistance zone, or you could exit trade when the indicator paints a red bearish candle.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
BW Zone Trade Indicator Buy Setup
BW Zone Trade Indicator Buy Setup

Sell Signal

The following could be your checklist for a sell trade:

  • When the asset being traded is down trending.
  • When the indicator paints a red bearish candle in a bearish trend.

Once these events occur:

  • You could open a sell position after you confirm your entry with bearish candlestick patterns.
  • You could set your stop loss just above the nearest swing high.
  • You could set your take profit at the nearest support zone, or you could exit trade when the indicator paints a green bullish candle.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
BW Zone Trade Indicator Sell Setup
BW Zone Trade Indicator Sell Setup

BW Zone Trade Pros & Cons

Pros

  • The BW Zone Trade Indicator may assist the traders in locating potential trend reversal zones.
  • During a trend-following price move, this indicator can be useful for long-term traders.

Cons

  • The BW Zone Trade Indicator may require additional knowledge of price action by the traders.
  • This indicator may sometimes mistake a trend reversal for a trend correction, and vice versa.

Conclusion

The BW Zone Trade Indicator may be worth adding to your trading arsenal, but keep your expectations in check. It, like any other technical analysis tool, is not capable of generating 100% correct indications. As a result, this forex indicator occasionally generates erroneous signals. Its performance will be highly variable depending on market conditions. You are free to create your own trading method based on it.

Free Forex Robot