At this point, it truly comes down to your personal preference, and traders will use both methodologies when it comes to using the Bill Williams Alligator Indicator. According to the description Bill Williams himself uses, there are a couple of ways to describe what’s going on. The red rectangle is the mouth opening for the alligator to eat again, this time driving to the downside. It is a technical analysis tool that uses a combination of three smoothed moving averages, each displaced into the future, to help traders identify the start and end of trends in the market.
In the first stage, the Alligator is asleep and the three smoothed moving averages are at the same point. Taken together, the lines form the mouth of a hungry alligator. From our point of view, the best entry points for the short position were the tops marked with number 6.
How To Use Alligator Indicator In Your Trading
In this case, there is a “slow” indicator but in the “fast’ timeframe. With these settings, you will get a couple of reliable signals for day trading, which is still good for a day trader. You can apply the Alligator with the standard parameters of 13;8;5. But there will be many false buy or sell signals in this case. You will need additional trading tools, for example, oscillators like Relative Strength Index, Moving Average Convergence Divergence or the Fractals indicator, to filter out signals that are not correct.
Many traders will enter the market following a candle close above/below all 3 lines at this point. In other words, the Alligator is sensitive to the various crossings of differently timed moving averages. First, make sure your EUR/USD chart is set to display candles (not a line chart) and that you are familiar with engulfing candlesticks.
What is Alligator Indicator
He was also responsible for developing a number of other leading indicators commonly used today, such as the Awesome Oscillator, Williams Fractal, and the Accelerator/Decelerator Oscillator. It depends on the timeframe where you use the Alligator in a trading platform. If you trade in long timeframes (H4 – D1), the signal period will last from one week to one month. When you trade on a one-hour chart, the period ranges from one to four days. When you work in shorter timeframes, a trading signal works out during one or two trade sessions.
- Technical indicators like the Williams Alligator can make the difference between a losing and winning trading strategy when used in combination with chart patterns and other oscillators and signals.
- You enter a trade at the fractal breakout when the market trend has already acquired a direction.
- Alligator is successfully used in any trade systems as the trend tool (Trading Chaos).
- The original one based on price and alligator lines, and a new second one that shows ALL divergent bars.
- This suggests that there is quite a bit of downward pressure.
When the price breaks the TEMA in a bearish direction, a short signal is generated. Critics argue that Alligator was https://forex-world.net/ developed for the stock market a long time ago. It will not work alone, and you will lose your deposit in the flat.
Default Parameters:
Then the predator brings its teeth closer to the prey – the red line becomes active and begins to acquire a direction. It will help you analyze any market, identify the trend, and spot the entry points at the beginning of the trending market, giving an advantage over most traders. Its purpose is to identify a trend and its direction and filter good signals from the bad ones thus avoiding the range-bound market that can lead to loses.
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. Following the green line, the balance lines of the teeth and jaws, the red and blue ones, begin to acquire directions.
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 https://investmentsanalysis.info/ and out of the market, but it also could cause a lot of choppy results if you are not cautious. Popular strategies for using the Alligator indicator include trading ranges and breakouts, pullbacks in price, and cross of the Alligator lines. Also note on the far right, price has broken from the range and pulled back – classic breakout/pullback trade.
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The above diagram illustrates just such an ideal trading example. The Alligator is sleeping, as indicated in the upper left of the chart. Remember that the Alligator indicator is shifted from 3 to 8 daily periods forward. The single crossing is your signal to enter a trade, after the closing candle is registered below the Green line.
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You can choose the colors and the thickness of the lines as you want. The most important is that it is comfortable for you to analyze the chart, and the technical analysis indicator doesn’t prevent you from seeing bars. 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. You spot the moments when the price momentum begins and try to enter at the momentum inception. When the market is trading flat, neither the Alligator alone nor the combination with Fractals will not work.
Traders will then want to watch for a cross of the green and blue lines or a close of a candlestick through the indicator lines before taking action. The indicator gives signals when the three lines – Jaw, Teeth, and Lips – converge and diverge. The Jaw is the line that turns the slowest, while the Lips turn and cross the fastest, signaling a change in trend.
When the alligator’s jaw, teeth, and lips are closed (moving average lines are intertwined), it means it is tired or sleeping. This is when many traders avoid taking a position because the trend is too weak. Bill Williams’ Alligator indicator provides a useful visual tool for trend recognition and trade entry timing, but it has limited usefulness during choppy and trendless periods. Market players can confirm buy or sell signals with a moving average convergence divergence (MACD) or another trend identification indicator. In the lower-left of the chart, the Alligator opens up, and an uptrend remains in place for some time.
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. The alligator indicator comes built into the Metatrader platform, therefore attracts a lot of attention due to that alone. This indicator only works in trends, and it should be avoided when you are in a sideways market.
The best time to get on board a trend move is just before it happens. This is one of the better trend indicators out there if you are looking for both range trading and with trend setups. The Alligator indicator was part of the Bill Williams trading system who suggested markets trend only 15-30% of the time. The other times, the market is more in a trading range condition that can be difficult to trade. Markets trend and market range and the 3 lines of the Alligator indicator, known as the jaws teeth and lips, is designed to alert traders to the presence of either of those market states. In the example above, the “Jaw”, “Teeth”, and “Lips” are shown for both downtrend and uptrend movements, as the EUR gyrates versus the USD.
You have noticed that the alligator works with the stochastic oscillator. Other tools you can use are the relative strength index and the moving average convergence divergence. You don’t need to calculate the moving averages; they are automatically calculated when you implement https://day-trading.info/ the indicator on a price chart. However, it’s worth knowing how the indicator is built to interpret its mechanics. 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.