There are many trading strategies you can formulate with this trend indicator. But you have to choose the one that suits your style of trading and the market you are trading. As a trader, you should already be feasting on the uptrend by now. But be mindful of the chewing movements that bring the lips close to the teeth — they may present the best opportunities to enter a trade at this phase. The green line crossing the other two moving averages and chasing the price is one of the indications that the Alligator is waking up and getting ready to feed.

simple moving average

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Primerica: When Going Gets Tough, Simplify (NYSE:PRI).

Posted: Sun, 27 Nov 2022 08:00:00 GMT [source]

Fans of the Tradingsim blog know that I am big on volume. Volume is probably one of the oldest off chart technical indicators you will find in technical analysis. This is a 15-minute chart of Intel from Sep 24-29, 2015. As you can see, the TEMA bounces above and beneath the price action. The thing that may not be apparent on the chart is the TEMA reduces lag usually created by the other moving averages. You must understand that Forex trading, while potentially profitable, can make you lose your money.

Aside from identifying existing trends, experienced traders also use the Alligator indicator to enter counter-trend moves. Bill William created the analogy with the Alligator to describe the behaviour of the market according to the phases of the Alligator’s daily routine. For example, the time of the trend absence or sideways moves relates to the Alligator’s sleeping. Afterwards, the Alligator wakes up and looks for its prey. The trend strength depends on the length of the sideways trading as the Alligator’s hunger depends on when it was sleeping.

Buy Sell Indicator

The trading system applies Fractals and Awesome Oscillator oscillators as additional filters to define entry points. As you know, when we trade forex, the market can be either trending or consolidating. The price moved in momentum for about 30% of the entire time; it trades in correction or accumulation for 70% of the time. The Alligator strategy can accurately identify the market situation.

technical indicator

The second type of trading strategy employs additional filters to spot entry points. Employing auxiliary indicators reduces the number of false signals and gives an opportunity to enter the forex market with additional confirmation. The Williams Alligator indicator is a technical analysis tool that uses smoothed moving averages. This indicator was created to exclude false signals if no trend. The moving averages can give many false signals during the flat.

Alligator Indicator Strategies

That being said, one of the biggest concerns about anything involving a moving average is that it’s a lagging indicator. In other words, it shows you where price and momentum was, not where it is. With that in mind, the indicator by itself won’t be sufficient enough to have a working system built around it. Granted, it can give you an idea when to get in and out of the market, but it also could cause a lot of choppy results if you are not cautious.

The chart below shows the Williams Alligator applied in a Microsoft chart. Technical indicators are essential tools that help traders predict future price of financial assets. These indicators are created using complex statistical formulas.

Alligator Indicator versus the Triple EMA

The Bill Williams Alligator Indicator is a trend-following indicator. As its creator stated, the entire idea of the markets is that they tend to trend between 15% and 30% of the time. Join thousands of traders who choose a mobile-first broker for trading the markets.

indicator lines

You can learn the trend direction following the fastest moving average. If it crosses other lines from top to bottom, it’s a signal to sell. When it breaks above both moving averages, it’s a signal to buy.

MT5 Alligator Alert Indicator

If the price consolidates above the jaws blue lines and continues to move in a new direction, the Alligator lines will begin to rebuild and indicate new trading dimensions. The strategy suggests not every trade will reach the set Take Profit, and it is normal. If the market conditions change unexpectedly, traders exit trades manually. Let us see the optimal settings to trade with the Alligator and Fractals indicators on the H1 timeframe, which allows us to trade intraday or hold trades for three days. This strategy is a part of Bill Williams Profitunity trading strategy.

How accurate is the alligator strategy?

As with any technical indicator, however, an Alligator's signals will never be 100% correct. False signals can occur, but the positive signals are consistent enough to give a forex trader an “edge”.

Here is a moving average-based trading system that I have found works best in trending markets, with its main instrument the alligator indicator. The alligator was first described by Bill Williams in his book New Trading Dimensions. The longest period line is blue (the alligator’s jaw), the middle one is red (the alligator’s teeth), and the shortest one is green (the alligator’s lips). Following the green line, the balance lines of the teeth and jaws, the red and blue ones, begin to acquire directions. When three MAs line up in the same direction, the trader decides whether to enter the market or not. When the next candlestick closes above or below all moving averages, it is a signal to enter a buy or sell trade.

Bollinger Bands Indicator in Forex Strategies

In an uptrend, look for trade setups where the indicator and a support level meet, but in a downtrend, look for setups where the indicator lines and a resistance level meet. So, here are some trading tools you can combine the indicator with. In some situations, the price can pull back much more deeply to the extent that it goes beyond all the moving average lines, only to crossover later and continue in the trend direction.

Research led the trader to the conclusion that the market is chaos and trading is a psychological game. Knowing the psychology and understanding the principles of behavior of market participants, the zones of accumulation and the price’s exit points from these zones are determined. Bill Williams Alligator is a trend indicator included in most trading platforms by default.

alligator technical indicator

If the price does not rise despite the buys, the chances of its decline increase. This is what eventually happens when sellers appear . If the price crosses MA line from below, it is a sign that it is time to buy; if it crosses from above, it is time to sell. In order to understand how the Alligator works, let’s start with moving averages. You can use them to know the right time to enter a trade after you have identified a trade setup with the Alligator indicator. The moving averages converge when the market is in a range or consolidation, and Bill recommends staying out of the market during such conditions.

PRIME* CCI Trend Pro

Do not use if you don’t trust technical indicators in general or you consider them as too complex instruments for trading, since there is a high risk of losing money rapidly. Another benefit of the Williams technical indicator is that it generates the entry points when the momentum is just emerging. Every trader that chooses a trading platform and establishes his retail investor accounts wants to enter a trade at good prices and exit at the peak of a trending price movement. Using the Alligator, you will be able to pick up strong market moves and take profits at the end of the trend. In the lower-left of the chart, the Alligator opens up, and an uptrend remains in place for some time. The lines then cross, and two small downtrends develop.

The Teeth , which represents a 8-period moving average offset by 5 periods into the future. The Jaw , which represents a 13-period moving average offset by 8 periods into the future. The Kairi Relative Index is a technical analysis indicator used to indicate potential buy and sell points based on overbought or oversold conditions.

Inverse Fisher Transform On %R Since Williams R indicator produces negative values, I preferred to add 50 instead of subtracting 50. Williams %R determines overbought and oversold levels. For a short signal, the same rules apply – but in reverse.

Which indicator is best for volatile market?

Some of the most commonly used tools to gauge relative levels of volatility are the Cboe Volatility Index (VIX), the average true range (ATR), and Bollinger Bands®.

After all the sides of the were revealed, it is right the time for you to try either it will become your tool #1 for trading. If the fractal appears in a zone of an intersection of lines of the Alligator – we ignore a signal. The dynamic trailing on lines allows to catch a short-term impulse, but to leave in time in case of its end.

The 5-period moving average is most sensitive to price movements and is the first to move in the new direction of the price, followed by the 8-period, and then, the 13-period. It’s just a simplification of how to read what is essentially the same indicator. It’s an easier way to see the same information, therebymaking it very useful.

What time are alligators more active?

Alligators are most active at dawn and dusk because that's when they can avoid the sweltering morning temperatures and the complete darkness of the night when visibility is not at its finest.

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