The ratio between profit and potential loss (Reward/Risk) was 2.59. The Alligator indicator was created by Bill Williams, an American trader, and psychologist. Williams described the Alligator indicator in his book ‘Trading Chaos’ in 1995. It generates entry points at the very beginning of the price trending movement. Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice.
If a fast moving average crosses a slow moving average from below, it is a sign that it is time to buy; if it crosses from above, it is time to sell. The Alligator is an indicator that was developed by a famous trader Bill Williams. He also described the trading strategy of the same name that uses the Alligator indicator. For a downtrend, a bearish color of the AC bars after a pullback to the alligator lines is a signal to go short.
- Yes, this indicator is based on the moving averages as well.
- The lips of the Alligator, the green line, is the fastest moving average and will be the first one a trader will want to monitor.
- 3) The Alligator’s Lips, the “Green” line, is a 5-period Smoothed Moving Average, moved by 3 bars into the future.
- The great thing about this approach, is we instantly observe the majority are in agreement and that decides which way to place our trade.
The Alligator indicator can be added to your charts from the indicator list in your charting or trading platform. When the trend starts, Alligator wakes up and opens it mouth – this is the time to start trading with a trend. So once again the lines of each trend must be sequential and not crossed so that it forms like an Alligator’s mouth, either uptrend or downtrend. The Alligator’s Teeth is the period 8 Simple Moving Average indicator in the median (High + Low) / 2 value which shows the price prediction of 5 bars in the future. The Alligator’s Jaw is the 13th period Simple Moving Average indicator in the median (High + Low) / 2 value which shows the price predictions of 8 bars in the future. The alligator’s behavior will return to sleep after being full by eating its prey.
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This means that the market is full and will now “sleep” in anticipation of new prey . The majority of trades see the trend exhaustion, the accumulation zone forms, there arises uncertainty. 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.
How do you trade an Alligator Indicator?
Harness past https://forexdelta.net/ data to forecast price direction and anticipate market moves. Having eaten enough to feel quite full, the Alligator starts to lose interest in the food/price . In principle, the Alligator technical indicator is a combination of Balance Lines that use fractal geometry and nonlinear dynamics.
What of lines of the indicator will be chosen as key for opening a position, and where Stop Loss will be placed, depends on risk level, comfortable for the trader. The Alligator uses a set of moving averages with different parameters of the shift. Technically the idea is implemented by means of the moving averages displaced forward («in the future») on the different number of bars. Click the ‘Open account’button on our website and proceed to the Personal Area.
The MACD or “Moving Average Convergence / Divergence” indicator is a momentum oscillator used to trade trends. MACD plots the distance between moving averages and helps traders identify trend… Although the Alligator indicator is one of the most reliable ones, it may also provide fake signals. If the green line crosses the red line opposite to the existing trend and then gets back, it’s a fake cross. One of the indicator’s drawbacks is the time lag, which is a common pitfall of all the indicators. You’ll likely see the fake cross much later than the price continues moving within the current trend.
Volume Weighted Average Price: VWAP
Bill Williams used the different parts of an alligator’s mouth to describe the three moving averages. As one of the few indicators that use a multiple moving average strategy, the component moving average lines have specific default colors to ensure clarity. Awakening phase — The awakening phase is when there are different colors on each side of the oscillator. The awakening phase corresponds to win the moving averages are starting to widen a bit in the Alligator Indicator.
The lip line should break through the teeth line upside, and the teeth line should cross the jaw line from bottom to top. On the new trading day of January 20, the market closes at the price rise. At the European session, there was a try to reverse the trend down. It is not recommended to conduct investment business in a sideways trend. After the Alligator is full, the market calms down, the balance lines join after they lose direction and begin to intertwine with each other.
Parameters and settings
The market would allow a trader to take profit at three different points. First, a trader could place a support level at the nearest lows . However, as the trend was solid, they would miss an opportunity to gain more. By using a trailing take-profit, they could exit the market when the %K line of the stochastic oscillator breaks above its %D line in an oversold area . Also, a trader could wait for the fastest MA to break above other moving averages .
- If the green line crosses the red line opposite to the existing trend and then gets back, it’s a fake cross.
- When the alligator is sleeping, that means that there is no trend in the market.
- After that, set the required technical indicator parameters or leave the default ones and click “OK.” The indicator will be added to the chart of the trading instrument.
Make sure your chart is set to display candles and then wait for the short signal, which is identified by the averages crossing downwards and widening . If it looks like the trend is set to continue, and a bearish engulfing candlestick occurs, this could be a signal to sell. Remember to set a stop a few pips above the high of the engulfing candle.
In other words, simply following the indicator can lead to a lot of choppy and inconsistent results if you don’t temper it with other help. That’s not necessarily that uncommon when it comes to technical analysis and indicators as most systems use at least a couple of them in order to form buy or sell signals. 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.
It is easy to fix the indicator to your price chart because it is one of the indicators that are naturally present in most charting platform. This perfectly corresponds to how an alligator opens its mouth — the lips first, the teeth, and then, the jaws. Additionally, the indicator can help traders identify impulse and corrective waves.
The absence of a trend
He is the originator of the Williams Alligator, Awesome Oscillator, Williams Fractal, and Accelerator/Decelerator Oscillator indicators. If the price chart is above the indicator we trade online and in a reverse situation when the chart is below the indicator we can buy puts. This indicator is a lagging indicator which is often too late to give the Alligator cross alert, trading signals come after a trend is formed.
Is alligator a leading indicator?
Like all the moving averages, the alligator is a lagging indicator. Such a lag in getting a trade signal leads to a partial loss of profit.
https://traderoom.info/ description, settings, entry, and exit conditions. To enter a trade based on the Alligator and Fractals, you need to wait until the Alligator wakes up. 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. The candlestick, on which the Signal Fractal was formed, should not touch the Alligator indicator lines. If the candlestick, on which the fractal was formed, touches the indicator, then such a fractal is considered invalid, and the signal is not traded.
The three lines stretched apart and moving higher or lower denote trending periods in which long or short positions should be maintained and managed. 3) The Alligator’s Lips is the 5-period smoothed moving average moved into the future by 3 bars. Like all the moving averages, the alligator is a lagging indicator, too.
Which indicator is best for trading?
- Moving average (MA)
- Exponential moving average (EMA)
- Stochastic oscillator.
- Moving average convergence divergence (MACD)
- Bollinger bands.
- Relative strength index (RSI)
- Fibonacci retracement.
- Ichimoku cloud.
Smoothed Moving Average – Same calculation is an exponential moving average except the smoothing constant is different. This exposes a significant drawback of the indicator because many awakening signals within large rangeswill fail, triggering whipsaws. When Alligator changes the signals from Buy to Sell and vise verse — exit. The Aligator indicator is one addition to the lagging indicators out there. Is late to confirm entries, but work better during trend days. Either way, Alligator indicator will only show what’s happening now, it won’t get any forecasting value no matter what Shift settings are.
Following the explanation of consecutive Jaws, Teeth, and Lips and pointing upwards without anyone crossing the Upward Trend, and vice versa. But to add insight into the alligator formula, below is the order of the formula. It can be any of ENUM_APPLIED_PRICE enumeration values.
When the price was above the Alligator lines, the lines themselves didn’t change their direction. That is, it has been relevant to sell gold up to now. The above figure displays the hourly timeframes of the BRENT oil price chart. In the hourly timeframe, I prefer using the following settings of the indicator 21;13;8, but I will cover it in detail later.
In addition, the TEMA can be combined with an extra https://forexhero.info/ average in order to validate signals. When the distance between the lines begins to expand and we see a bullish candle closing above the Alligator teeth and jaws, we go long. The signal for a hungry Alligator is after the completion of the waking-up stage, a candle closes below or above the three lines. This is when we should go long or short respectively. The above is the default Bill Williams Alligator settings, which of course can be configured to meet any trading style. The Alligator indicator is an on-chart trading tool created by famous trader and author Bill Williams.
Why should you move the order to the breakeven zone in this case? It is because the Jaw line is responsible for the trend border in the timeframe you trade. If the line is broken out, the trend is likely to change. You wait for the moment when the hourly candlestick breaks through the last formed upward fractal and closes above the high. The Fractals indicator looks like an arrow above the Japanese candlestick up or below the candlestick down on the chart. Risking 1% of the initial deposit, we can afford to enter a trade of 0.45 lots.
The Gator Oscillator eliminates the need for those moving averages by simply plotting down in this window what the moving averages would be doing. As the alligator is awakening, that means that a trend is starting to form. As with any trading strategy, it is vital that you test it, lay out a trading plan, and ensure risk management is priority one. Trading the financial markets is not as easy as many make it out to be.
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”.