If the moving average moves upwards, it signals traders that there is a strong uptrend and signals them to place long orders. If the moving averages move downward, it signals traders that there is a strong downtrend and signals them to place short orders. The Commodity Channel Index (CCI) is a momentum indicator that measures the current price deviation from its average price.
An alligator “sated” sell signal arrives when the Lips cross below the Teeth and Jawlines and lines intertwine as the price moves sideways. The indicator has been tested for several decades, therefore, it has a strong track record of use by professional traders. Take a look at the green arrows, you can see that the market has a mix of colors, suggesting that a trend could be starting. As you can see, this indicator is highly sensitive to trend, and as a result can tell you when it’s time to either be in or out of a trend. It’s also worth pointing out the fact that the measuring of the trend doesn’t necessarily suggest which direction that trend is in, just that it is moving. Remember, this oscillator essentially just measures the difference between the three moving averages that make up the Alligator Indicator.
- According to the Alligator Trading System, just because an up or a down Fractal is formed, it does not mean that these are valid signals!
- Applying the alligator indicator helps you trade along with strong trends.
- For instance, in the EUR/USD currency pair, the indicator can help detect potential bullish or bearish trends, allowing traders to make informed decisions.
- This is also one of factors that makes the alligator indicator so unique.
- Or close deals on opposite signals from other indicators, such as MACD or the Stochastic.
Statistically, most markets remain range bound for around 70 percent of the time and trends only around 30 percent of the time. When the price goes above the lips (smallest period moving average) and all three lines are aligned upward, this may imply a bullish breakout. Conversely, when the price goes below the lips and all three lines are arranged downward, it signals a bearish breakout. By following these signals, traders can ride the momentum and potentially generate profits. Traders can use these moving averages to identify the market phase when the averages come together or spread apart.
The Alligator Strategy – How to Use the Alligator in Forex Trading
The Alligator indicator shows the trends in the markets for the time frame that it is applied to. Therefore, when you change the timeframes, you can find that the Alligator indicator automatically changes depending on the price action of the time frame that you are viewing. In the above chart, you can see that we have both the horizontal support and resistance levels and trend lines plotted on the chart.
Stay on top of upcoming market-moving events with our customisable economic calendar. Here are some of the frequently asked questions about the Williams Alligator indicator. alligator indicator trading system Now, let’s see the different use cases to successfully utilize the alligator indicator. Gordon Scott has been an active investor and technical analyst or 20+ years.
When using the Alligator indicator bear in mind not to use redundant indicators. For example, you can avoid using moving averages because this is the basis for the Alligator indicator. The Alligator indicator or Williams’ Alligator is one of the default technical indicators available on most trading and charting platforms.
These diverse case studies demonstrate the versatility of the Alligator Indicator in various trading scenarios when used correctly. Whether identifying new trends, confirming the strength of existing ones, or detecting consolidation phases, the Alligator Indicator proves to be a valuable tool for traders across various markets. Basing trading decisions solely on the Alligator Indicator could lead to undesirable outcomes. The default settings of the alligator indicator are great for most trading scenarios.
A crossover between the Teeth and the other components may signal potential changes in the market trend, providing valuable information to traders when making decisions. In the example above, the “Jaw”, “Teeth”, and “Lips” are shown for both downtrend and uptrend movements, as the EUR gyrates versus the USD. When the green and red lines above cross the blue line, it is regarded as a sell signal, and vice-versa.
Then the Alligator woke and an uptrend commenced (indicated by the third arrow), the “eating with an open mouth” phase. The price continues to rise extremely until the Alligator became sated and then slept for a brief period and the cycles continue again and again. Margin trading and leverage are powerful tools in the arsenal of online traders. The Alligator Indicator has two states, sleeping and awake, which describe the current market conditions.
It provides signals when a new trend is in motion and also tells you when there is no trend. Once you find a Fractal that is either above or below the Alligator’s Teeth, wait for the Alligator to start opening its Jaw, which happens when the three moving averages start to expand. If the Alligator indicator is signaling an uptrend, simply place a Stop Buy order one tick above the Up Fractal in the direction of the trend.
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Using a Forex example, this is a daily price chart of the GBPUSD leading into December 2021. With the Alligator, we have achieved better results with 20% of the effort. What we did not show in the above example are the commission savings you would have racked up by using the Alligator indicator. Notice that the lag of the TEMA is significantly less when compared to that of the standard EMA.
How the Williams Alligator Indicator Works
When the Alligator’s moving averages are contracting, it signals a sideways market and according to the system rules, you should stay on the sidelines and wait for the next trend to develop. In line with his chaos theory, Dr. Williams developed a range of technical indicators. His approach to technical analysis and proper use of the Wiseman Indicators combined with the rules he outlined makes up the bulk of the Alligator Trading System. The Alligator Indicator is a popular tool among Forex traders due to its adaptability and effectiveness in trending markets. It can be used on various financial platforms, including MetaTrader 4 (MT4) and MetaTrader 5 (MT5). Despite the aforementioned advantages, the Alligator Indicator also has some drawbacks.
Explore the latest MetaTrader platform and access advanced trading features and tools. Following this, price breaks the rising trend line and starts to develop into a downtrend. For example, with the Bollinger bands, you know that when the bands contract, they will soon expand, and prices snap out from the narrow trend. With the Alligator, a similar concept is realized when the Alligator sleeps. According to Williams, he believed that many trading systems fail because they rely on the predictability of the trends. He maintains that a good trading system is one which can predict the unknow.
Once it has eaten its fill, it will close its mouth and go back to sleep. We can determine whether or not the Alligator is sleeping based on the balance lines (SMAs). When the Alligator is showing a crossover of the fast green line above or below the slower lines (blue and red), with all three lines diverging as indicated in fig. The longer the Alligator spends sleeping, the hungrier it becomes when it wakes, and we can expect it to maintain its hunt for food — in this case, a trend in any direction. These periods when trends are forming seem to be the most effective to trade using this indicator. The Alligator indicator, also known as the Williams Alligator indicator, is a technical analysis tool developed by Bill Williams.
Of course, the longer the beast sleeps, the hungrier it will be when it wakes up. 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. Additionally, the indicator can help traders identify impulse and corrective waves. However, you only appreciate those better when you combine the indicator with a momentum indicator. We can therefore say that a crossover of the green line to the upside indicates a buy signal while a crossover to the downside indicates a sell signal. The more time the Alligator spends sleeping, the hungrier it becomes and when it wakes up; When it eventually wakes and is prepared to hunt bulls and bears, see fig.
How to set up the Alligator indicator in MetaTrader 4
However, traders should exercise caution and always seek additional confirmation to avoid false signals. Additionally, exit points can be identified when the Alligator Indicator lines https://1investing.in/ cross each other or when the lines start to come back together, indicating a weakening trend. By utilizing these entry and exit signals, traders can develop a solid trading strategy.