Lesson 8 – AIMS The Box Indicator

What is Fractals Indicator in forex MT4?

It is one of the best MT4 Forex Trading Indicator for identifying Support Resistance, Entry Point and Stop Loss Levels and one of the best Trailing Stops mechanism. One Indicator to rule them all.The AIMS Box indicator has been derived from the Bill Williams Fractals Indicator.

“The fractal indicator is based on a simple price pattern that is frequently seen in financial markets. Outside of trading, a fractal is a recurring geometric pattern that is repeated on all time frames. From this concept, the fractal indicator was devised. The indicator isolates potential turning points on a price chart. It then draws arrows to indicate the existence of a pattern. The bullish fractal pattern signals the price could move higher. A bearish fractal signals the price could move lower. Bullish fractals are marked by a down arrow, and bearish fractals are marked by an up arrow”. (Investopedia)

The AIMS Box or Fractal Box is made of upper and lower fractals. It consists of a minimum of five bars with the top of the box being the upper Fractal; the bottom of box, the lower Fractal

The AIMS Box Upper and Lower Levels are the high and low of the AIMS Box – the upper and lower Fractals.

This indicator, by itself, provided the concept that revolutionized my forex trading for good.

Objective information generated by the AIMS Box and its Levels

1. Crystal clear entry levels.
2. Stop loss levels – clear support and resistance levels.
3. Money management information.
4. Position/lot size information.
5. Trailing stop loss mechanism.

Besides that, it also generates the following additional information about the market:

1. The market always creates an AIMS Box before it turns around. Every trend starts and ends with an AIMS Level.
2. Entries are always taken on the breakout of the AIMS Box. We don’t take entries inside the AIMS Box on the timeframe that produced the Setup. When price is inside the grey shaded zone, it is inside the AIMS Box; it is within the AIMS Levels – we look the breakouts
3. We prefer a short AIMS Box: a tight range between the AIMS Levels. New trades are preferably taken on the break of tight AIMS Levels. AIMS Levels are considered tight, shallow or narrow when the distance between upper and lower AIMS Levels, on M1, is less than 15 pips.
4. The stop loss is always set on the opposite side of the AIMS Box from where the trade was entere
5. We do money management using the number of pips distance between upper and lower AIMS Levels.
6. We use the AIMS Box for trailing our hard stop loss – basically behind the obvious support and resistance.
7. It is the structure of the structure of the market. Elliott Wave is the structure of the market and the AIMS Box is the structure of Elliott Wave. 

Interesting Fact

“Within an AIMS Box there is always an Elliott Wave of a certain degree”

If you understood this concept you are in line with the structure of the market. The market cannot turn around without creating an AIMS Box. There is always always always an AIMS Level at the top or bottom of a wave.

Now let’s study the anatomy of the AIMS Box and its Levels.

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 We have another Setup for trading inside the AIMS Box but that is beyond the scope of this book for now. It will however be explained in the Forum under ‘Expert Techniques’ in due course.

Anatomy of the AIMS Box and the AIMS Box Levels

As mentioned earlier, the AIMS Boxes are formed using high and low Fractals. A new AIMS Box will be created whenever price makes a new high or low Fractal.

The bottom of the AIMS Box – the Lower AIMS Level – is created when a low Fractal is formed i.e. the low of a candle is lower than two candles to the left and two candles to the right.

The AIMS Level clearly shows support and resistance – where price approached a level and could not go further, forcing it to retrace on itself.

Pending Sell Order is set 1 pip below the lower AIMS Level (provided it’s a correct Setup).

The top of the AIMS Box – the Upper AIMS Level – is created when a high Fractal is formed i.e. the high of a candle is higher than two candles to the left and two candles to the right.

Pending Buy Order is set 1 pip + spread above the AIMS Box (provided it’s a correct Setup).

Below: Example of Lower AIMS Level

Does the AIMS Box Repaint?

Not really. The indicator is coded to paint a tentative AIMS Box at the end of the 4th candle instead of 5th candle. You need at least five candles to create an AIMS Level, but the code allows for an early warning system: instead of painting an AIMS Box at the end of 5th candle, it paints it at the end of 4th candle. Sometimes you might notice an AIMS Box formed and then deleted in a minute – this is not a repaint. When you see an AIMS Box, wait for one more candle to close before considering it a confirmed AIMS Box.

Where to put your stop loss?

We put our stop loss on the opposite side of the AIMS Box.

Stop Loss for Buy Order: 1 pip below lower AIMS Level

Stop Loss for Sell Order:  1 pip + spread above upper AIMS Level

Distance between Upper and Lower AIMS Levels

The height of the AIMS Box – the distance between upper and lower AIMS Levels – should be considered before deciding whether or not to enter a trade.

15pips or Less:

• We prefer to trade with tight AIMS Levels – a short AIMS Box.
• For an M1 chart on EUR/USD, at the time of writing, 15 pips or less is considered tight and tradable.

When AIMS Levels are more than 15 pips apart, the potential risk-reward ratio decreases.

Example: Suppose we have a Setup and AIMS Levels are 15 pips apart from each other, we would require an 18-pip stop loss (assuming a 2-pip spread plus our 1-pip margin). With an 18-pip stop loss on M1, you will obviously have to gain at least 18 pips to just make it to 1:1 risk-reward. We would like to see enough space for at least a 1:2 to stay consistently profitable, so be cautious when you want to take a trade that requires a stop loss larger than 15 pips.

• We set a hard stop loss on the opposite side of the AIMS Box.
• If price immediately turns around we can exit on Blue/Red Dot before the stop loss is hit.
• or we can stay in it until stopped out.

What is Bracketing?

Bracketing is the placing of pending buy and sell orders, either side of the AIMS Box.

We Bracket when: –

• Market is going sideways and there is no obvious trend (Alligator asleep)
• AIMS Levels are tight
• AIMS AO is close to the Zero Line with short histogram bars

Bracketing is used only when

1. Alligator is asleep on both M5 and M
2. AIMS Levels on M5 and M1 are both tight

https://www.screencast.com/users/ImmyTrader/folders/Snagit/media/bf3aeedb-feeb-4c7d-a846-5b680f8a395d/embedhttps://www.screencast.com/users/ImmyTrader/folders/Snagit/media/5151472f-3625-4685-8bc2-77af2f3d6fe2/embed

When we have all the lines intertwined, like in the above picture, we bracket the market each side of the AIMS Box. A stop loss for the buy order is placed exactly at the sell order level and vice versa. See the picture on the next page.

Important:

• Do not bracket if the trend direction on M5 is clear.
• If the Alligator is open on M5, we would usually be biased to take trades only in that direction.
• Remember that we only trade in the direction of the trend on M5.
• For beginners, I recommend waiting for Alligator on M5 to open and then wait for a Setup on M1.

What is ‘Stop and Reverse’?

Bracketing and the ‘stop and reverse’ are similar things. When we bracket the market our stop loss is on the other side of the AIMS Box, exactly at that level we have an order to go in the opposite direction.

For example, if triggered long but the breakout fails and our stop-loss is hit, a sell order is activated as soon as we are stopped. This is called a ‘stop and reverse’ order, whereby when one order triggers and reverses; it stops at the other side of the AIMS Box and triggers a trade in the opposite direction. This ensures that we don’t miss a trend.

What if both Entries Fail?

It is possible that it might happen. There is nothing one can do about it; it’s part of the game. Wait for next Setup.

Advantages of Bracketing: You will never miss a trend again. You must do your money management correctly – please read Money Management in Chapter 4.

Rules for Bracketing:

• We bracket only when the Purple Line is also inside the AIMS Box. If Purple is away from us, we take trades in the direction going away from the Purple Line.
• We place bracket trades when the Alligator is asleep on M5 as well. If the Alligator is awake on M5, trade long/short in line with where the mouth is pointing – “the trend is your friend”.