There are 2 set of divergent bars that can be turned on. The original one based on price and alligator lines, and a new second one that shows ALL divergent bars. The second set has lighter lines and colors to differentiate them from the filtered alligator divergent bars. From those states, a trader can determine if they will use a range trading strategy, a trend trading strategy, or wait for a breakout strategy to be used. A Simple Moving Average is a technical indicator that shows the average price of an asset over a specific period of time.
According to Bill Williams, the ALLIGATOR, AC, AO, and FRACTAL indicators form a complex trading system and work best when they are used in conjunction with each other. If D1 is in an uptrend, then you need to wait for the downtrend on H4 . If D1 is in a downtrend, then you would wait for the uptrend on H4. With the naked eye you can see that prices do not move in a straight line but rather in peaks and troughs. Information in this article cannot be perceived as a call for investing or buying/selling of any asset on the exchange. All situations, discussed in the article, are provided with the purpose of getting acquainted with the functionality and advantages of the ATAS platform.
Example of an Alligator Indicator strategy trade
The https://forex-world.net/ strategy follows the idea that the market spends most of its time in tight ranging periods. The Alligator seeks to show the trend movements and the best possible period with a high likelihood of a breakout. To get a better understanding of how the Alligator works in Forex trading, let’s look at the alligator indicator example. Learn common trading strategies used by the best traders. When the MACD line crosses above the signal line and is rising above the zero line, it is a strong indication of a possible uptrend move or bullish trend.
Moving averages, as the name implies, show the average price values over a certain period. Therefore, if MAs are in the same place on the chart and do not show any direction with their slope, then the market is not trending. The teeth line is the 8-period smoothed moving average that is moved five days into the future. Green line indicates the balance line of the Lips; it is the weakest level.
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Next, after the Alligator has awakened and started opening the mouth, you put an order at the breakout of the nearest fractal. The fractal must be above or below the Alligator teeth, depending on the trade direction. 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. This strategy is a part of Bill Williams Profitunity trading strategy. Profundity could be a bit complicated for beginner traders, but the Alligator and Fractals trading strategy will suit traders of any level.
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 alligator indicator comes built into the Metatrader platform, therefore attracts a lot of attention due to that alone. As the indicator consists of three lines, traders consider their interaction. It’s the fastest moving average with a standard period of 5 and a shift of 3 bars forward. Typically, it has a period of 13 and is shifted 8 bars forward. In the alligator indicator, the SMAs are smoothed to slow down indicator turns and make the signals more solid.
What is the Alligator indicator?
This enables you to profit from increasing forex prices. If you think the indicator is suggesting a downtrend, you can open a ‘sell’ position , which enables you to profit from falling FX prices. If either of your predictions are wrong, you’ll make a loss. The Alligator forex indicator is a respected tool in the forex trader’s toolbox.
Without filters, it could send many false signals and there is a high risk of causing many losses. You need to adjust settings for each trading style and timeframe individually. A significant flaw is that you need to adjust the Alligator technical indicator parameters for each timeframe individually. However, with this approach, there will be a lot of signals in short timeframes, half of which will be false. In long timeframes, on the contrary, there will be fewer signals, and you will have to wait for entry signals for a long time.
Starting from the European trading session, the Alligator begins to wake up, the lines start to line up. During the first trading hours of the European session, the price closes above the Alligator’s mouth. We notice this moment and decide to look for an entry point to buy gold. Open the chart of any trading instrument in the LiteFinance Personal Profile. I will use the gold price chart as an example, but you can trade with any asset like foreign exchange, currency pair, shares, etc. To begin with, let’s consider the classic use of the Alligator without using other analysis trading tools.
The 13 period moving average is the blue line in our example below and is called the alligators jaw. To understand how the indicator works we recommend you to install it on your chart and test its signals on the quotes history. Such training let you get used to a currency pair and understand its signals. You can also watch trading signals on a real time chart. In terms of signals, the TEMA acts the same way as a standard moving average. When the price breaks the TEMA upwards, a long signal is generated.
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Taken together, the balance lines form the “mouth” of a hungry alligator, ready to hunt for inexperienced traders and other market participants who trade against major players. Note that at the first stage, Alligator is in a sleeping phase, and the three smoothed moving averages are at the same point. It is composed of three smoothed moving averages with different price periods. Each of the moving average lines makes up the Alligator mouth; they are the Alligator’s lips, teeth, and jaw which are known as the balance lines. The Alligator was developed by the legendary trader Bill Williams.
However, alligator indicator worth knowing how the indicator is built to interpret its mechanics. Yes, this indicator is based on the moving averages as well. However, it’s one of the most reliable indicators in the forex market. With moving averages on lower time frames, you can get a ton of whip back and forth. Learn everything you wanted to know about the stochastic oscillator and how to use it in trading. Stochastic is a technical indicator of the type of oscillator.
How to use the Alligator Indicator in forex trading
Teeth— a smoothed moving average of period 8 and shift 5. Jaw— a smoothed moving average of period 13 and shift 8. Bill Williams created several technical indicators that together are widely used as a foundation for trading strategies.
- When all three lines are aligned, going up one after another with the green being greater than red being greater than blue, prices are in an uptrend.
- Open the chart of any trading instrument in the LiteFinance Personal Profile.
- Williams recommended staying out of the market in times of consolidation.
- Let us remind you that the more frequently the price touches the fastest moving average , the sooner the trend will end.
- Alligator’s Teeth is the intermediate 8-period moving average, which is moved 5 bars into the future.
It’s also important to figure out a timeframe that works best for you, not to mention the fact that some markets will act slightly differently than others. That being said, this is a popular enough indicator that several other traders out there will be following it as well. The theory says traders should use 2-3 signals of different technical analysis tools, including indicators, candlesticks, and chart patterns, before entering and exiting the trade. As soon as the distance between MAs increases, it’s a sign the market is entering a trend. When at least two moving averages are implemented on a price chart, their essential signal is a crossover.
The balance lines of the lips, teeth, and jaws point in the same direction. The Williams Alligator is a standard technical analysis tool that comes with most trading platforms by default. You can find the Alligator in the list of classic trend indicators of the MetaTrader terminal, as well as in thepersonal profile of the LiteFinance brokerage company. The Williams Alligator analyzes stock indexes, equities, commodity and precious metal markets, Forex trading, and cryptocurrency markets. It is a technical indicator based on the moving averages with different periods. If you think the alligator indicator is signalling an uptrend, you can open a ‘buy’ position .
This is typical for Bill Williams’ approach to financial markets. The moment of crossing by the price of all three lines will be a strong signal for an entrance to the market; the transaction on kickback from AlligatorsTeeth looks riskier. SMMA (MedianPrice; 8; 5) – the similar moving average displaced on 5 bars forward; AlligatorsTeeth, color – red. The Alligator uses a set of moving averages with different parameters of the shift.
Moreover, he believed that fundamental analysis is something like crystal-ball gazing. Moving averages are the price derivatives, so if there is a price chart, and you can attach moving averages to the chart, such a market can be analyzed using the Alligator. The Forex Alligator or the Williams Alligator is a technical indicator that defines the market trend and generates entry points at the beginning of the price momentum.
Such a lag in getting a trade signal leads to a partial loss of profit. But this lag functions as a filter and helps eliminate insignificant and false signals. Traders can get caught up in market chop using the Williams Alligator. The Williams Alligator is a trend-following indicator and can signal the absence of a trend, the formation of a new trend, and the direction of the trend. The alligator is said to be “sleeping” when the lines are tight within a narrow trading range.
I should note that some traders use additional filters to supplement the Alligator, as it sends quite a lot of false signals in the sideways trend before the market determines the direction. I should note that the three balance lines are the moving averages that are applied to the median value ((high+low)/2), not to the bars’ opening or closing prices. The best timeframes to trade with the Alligator are the daily, four-hour, and one-hour timeframes. It makes no sense to use the Alligator in shorter timeframes, as there will be many false signals due to the price noise. The balance lines can provide resistance/support during the trend phase.
You can change this to simple, linear weighted, and exponential. The information in this site does not contain investment advice or an investment recommendation, or an offer of or solicitation for transaction in any financial instrument. Discover the range of markets and learn how they work – with IG Academy’s online course.