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We can notice the formation of a trend when the fastest moving average crosses the other two lines. The strength of the trend will reflect the length of the sideways movement. The bigger the distance between the lines, the stronger the trend is. It’s a 13-period moving average, which is moved 8 bars forward.
You may combine the Alligator indicator with another momentum-based indicator like CCI to enhance your trading experience and to get better trading signals. Say when the alligator awakes and you found that CCI has already entered the overbought area (i.e. above +100) so it’s an early indication that the uptrend is likely to continue and with speed. If the moving averages are crossed and moving sideways it means the alligator is sleeping and usually the longer they trade sideways the hungrier the alligator will be when it wakes up.
- An alligator “sated” sell signal arrives when the Lips cross below the Teeth and Jawlines and lines intertwine as the price moves sideways.
- This strategy is less risky than other methods, but can often leave some profit on the table by playing it safe.
- Well, lucky us, the calculation is not required in practice.
- The indicator can be used across forex, commodities, stock indices, and cryptocurrencies – among the many financial assets offered on PrimeXBT.
- A bullish fractal has a middle candlestick with the lowest low, among other candlesticks.
His focus is on the technical side of trading filtering in a macro overview and credits a handful of traders that have heavily influenced his relaxed approach to trading. Shane started day trading Forex but has since transitioned to a swing/position focus in most markets including commodities and futures. This has allowed forex trading for beginners less time in front of the computer without an adverse affect on returns. Once the first 2 lines start to pull away from the blue line, the blue line trends in the same direction – the Alligator has opened it’s jaws and is looking to feast. The trader is looking to feast on the price action that is happening.
Application in trade strategy
This indicator serves as a very useful tool for determining trend movements. On its basis or in combination with other technical analysis tools, various trading strategies are built, with strict observance of which you can get excellent trading results. This is the Balance Line for a significant time period an order of magnitude lower.
As a result, the most common mistake is that traders close the position earlier than they should. Bill Williams, the trader who developed the practical linux for network engineers, believed that markets only follow a trend 15% to 30% of the time. Let’s explore the alligator indicator and see how it’s used to identify trends in forex trading.
How to interpret the Alligator signals
But once the lines begin to diverge, the alligator is said to be awakening and a new trend forming, and then feasting as it follows the price action as it trends in a new direction. 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. You can detect the power of the indicator not only by the spread between the moving averages but the price interaction.
As you can see, the numbers 3, 5, 8, 13 appear in the settings. All of them are consecutive terms of the Fibonacci sequence. This is typical for Bill Williams’ approach to financial markets. Use indicators after downloading one of the trading platforms, offered by IFC Markets. So the entry point should be placed at the nearest fractal, lying above the Alligator lines.
- Visually, the lips line moves first before the teeth follow.
- Having said that, it’s also important to keep in mind that this is simply a triple moving average system.
- Conversely, the beginning of a downtrend is a signal to consider closing of opened Buy positions and opening of Sell ones.
- Alligator PullbacksYou can determine the length of pullback needed by choosing where price has to pull back to.
- When an ALLIGATOR indicator is drawn on a chart, a trader can analyze its information and try to interpret it correctly.
The Lips crossing down through the other lines signals a short sale opportunity while crossing upward signals a buying opportunity. Williams refers to the downward cross as the alligator “sleeping” and the upward cross as the alligator “awakening.” The key to the forex, bullion and cfd broker is that it refers to Bill Williams’ original assertion. This is that traders make more money when they know that a trend will continue for the foreseeable future.
How to add the Alligator on a chart and interpret signals
Bars are blue when a squat bar is formed, these indicate a battle between… Bill Williams indicators are simple and quite self-sufficient, however, are most often used together. CFDs are leveraged products and as such loses may be more than the initial invested capital.
This is a 5-period fast moving average that is shifted by three bars to the right. 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. 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. When the price breaks the TEMA in a bearish direction, a short signal is generated.
Moving averages are highly popular among forex traders, mostly because of their… So now, the alligator has lost interest in the food and it closes its mouth to rest . This is when some traders close their positions if they’ve made a profit, as the upward or downward trend may have come to a halt.
Indicators, Strategies and Libraries
Once the candle closes above or below the three lines on the indicator, it signals to traders a buy or sell position should be taken. Oftentimes, these trade signals appear before a crossover to the alligator lines, allowing traders to catch trends earlier. Here are some of the most common and effective Wiliams Alligator trading strategies. Trading strategies usually require multiple technical analysis indicators to increase forecast accuracy. Lagging technical indicators show past trends, while leading indicators predict upcoming moves. When selecting trading indicators, also consider different types of charting tools, such as volume, momentum, volatility and trend indicators.
In this article, we are going to do a head-to-head comparison of the Alligator indicator with the triple EMA to see which one comes out on top. The balance lines can provide resistance/support during the trend phase. The price can go beyond the green line for the short periods of time.
The possible parameter’s values are MVA,EMA, LWMA, SMMA, Vidya , Vidya , and WMA. Traders choose the smoothing technique in accordance with their needs and preferences. During the procedure, a trader can customize the indicator by specifying its parameters in the Properties dialog box.
The TEMA generates many fake signals, because it consists of only one line. Again, the TEMA is more sensitive to the movement of the price compared to other MAs. As previously stated, the TEMA’s purpose is to isolate the lagging as much as possible. Thus, TEMA gives earlier entry signals than the Alligator. This makes the TEMA riskier than the Alligator, since it increases the amount of false signals.
Always perform thorough technical and fundamental analysis before opening a position. As shown below, the EUR/USD pair reversed its descent when the three periods reversed. A buy signal usually comes when three lines reverses and the jaw remains on the right sides. As the price rises, you should watch as it moves below the green line.
The indicator looks for convergence/divergence in order to build signals. The Jaw makes slower turns than the others, while the Lips will be the fastest moving average in the indicator. Because of this, the triple indicators are used very similar to a three moving average server system. For example, if the green indicator slices through the other two to the downside, it’s a sell signal. On other hand, if the green indicator slices through the other two to the upside, that’s a bullish sign and a potential buy signal. This indicator only works in trends, and it should be avoided when you are in a sideways market.