A step by step guide to help beginner and profitable traders have a full overview of all the important skills (and what to learn next 😉) to reach profitable trading ASAP. When the three lines diverge widely, a trend is strong indicating that the mouth of the alligator is being fed. When the trend takes shape, the Alligator wakes and begins eating. Once full, it closes its mouth once again and goes back to sleep. The MACD, RSI, and stochastic oscillator are some indicators that complement the Alligator indicator in trading.

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The lip balance line crosses the teeth and jaw line, signaling the end of the uptrend. The exit signal appears when all three lines meet at one point, the trend direction is not clear, or when the lip line crosses the one of the three lines which is the jaw. This means that the market is full and will now “sleep” in anticipation of new prey (momentum).

The major challenge for market participants is to determine the moment when the trend starts because any technical indicator has a delay which cannot be completely eliminated. 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.

Indicator’s numbers

This was confirmed when the Alligator’s Lips (green line) crossed above the two slower lines (blue and red). The direction was confirmed as the lines diverged and we saw an uptrend that lasted from mid-May to early October. If you think the alligator indicator is signalling an uptrend, you can open a ‘buy’ position (go long). If you think the indicator is suggesting a downtrend, you can open a ‘sell’ position (go short), which enables you to profit from falling FX prices. If either of your predictions are wrong, you’ll make a loss. The main drawback is Williams’ decision to use moving averages, which are the most lagging technical tool.

• This is the level of the previous bar local highs which shows the past performance of the asset’s trading dimensions.
• Afterwards, the Alligator wakes up and looks for its prey.
• This is in relation to using an Alligator indicator for instance.
• At the same time, the spacing of the Alligator lines is supporting your short trade.
• Traders who enter trades against the trade by mistake are doomed to failure.

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. To begin with, let's consider the classic use of the Alligator without using other analysis trading tools.

Fractals trading: How to trade using it?

The hunt begins from the moment when the Alligator’s lips open, the market starts to wake up. Then the predator brings its teeth closer to the prey - the red line becomes active and begins to acquire a direction. The majority of trades see the trend exhaustion, the accumulation zone forms, there arises uncertainty.

• The price should be trading below all the Alligator lines.
• The crossover is one of the most common trading strategies with this indicator.
• However, it's crucial not to get fooled and enter the market without confirmation.
• Some traders may look at a trend indicator that uses a different method to see if it confirms the signals.
• To remove the indicator from your chart, right click on it and select ‘delete indicator’ in the pop-up window.

As a matter of fact, many of Bill Williams’ indicators also follow this idea. The Alligator indicator also builds up trading signals by applying convergence-divergence relationships. Moreover, the indicator is made up of a combination of moving averages that uses nonlinear dynamics. When done correctly, traders will be able to see accurate results with lips making the fastest turns and Jaw making the slowest turns.

How the Alligator Pattern Works

It shows when the market is trading flat, when there appears momentum and when this price momentum starts and ends. It could get you into trends early but also get you into trouble with false signals just as often. Forex atr As such, it is best to use a tight stop loss and combine this strategy with other technical indicators. This is perhaps the most straightforward Bill Williams Alligator strategy, and its rules are simple.

Alligator isn't the only indicator created by Bill Williams. Nonetheless, it's famous among forex traders all around the world. 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.

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Let me explain how to trade with Bill Williams’ Alligator indicator. The Alligator indicator was invented to determine the state of the market. 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.

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 https://investmentsanalysis.info/ 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. When the Alligator is pretty full and has lost interest in the food, it closes its mouth (lines intertwine or move closer together).