Learn how to design a trading system by Alligator MQL5 Articles
There is no trend when the three moving averages are intertwined. At this period, the market is consolidating with low volatility or becoming very choppy, which is very difficult to trade. Bill Williams used the different parts of an alligator’s mouth to describe the three moving averages. As you can see in June 2018 (first arrow), there was a crossover of the green line to the upside indicating an uptrend and then an expansion of the line confirms the trend move. Since we are only taking long positions, we waited until the market correction ended in late December before taking another long position (second arrow). Although we saw a minor retracement along the line, the market was still well in an uptrend.
The pink circles show us when the Alligator is attempting to wake up. In these moments, we should prepare ourselves for a long position. The Take Profit is set at the distance twice as much that of the stop loss. It is placed below the low of the last formed descending fractal.
You should consider whether you understand how this product works, and whether you can afford to take the high risk of losing your money. We want to clarify that IG International does not have an official Line account at this time. We have not established any official presence on Line messaging platform. Therefore, any accounts claiming to represent IG International on Line are unauthorized and should be considered as fake. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. The Jaw is just a smoothed simple moving average with a period of 13, shifted forward by 8 bars.
- If the moving averages move downward, it signals traders that there is a strong downtrend and signals them to place short orders.
- As a trend determinant, the Alligator indicator can be included in a strategy with any entry method.
- Bill Williams uses the behavior of an alligator to explain what is happening in the market.
- For a downtrend, a bearish color of the AC bars after a pullback to the alligator lines is a signal to go short.
The longer the timeframe, the smaller the values can be set into the formula. The first type of trading with the Bill Williams’ Alligator indicator suggests you don’t use any additional trading tools. The second type of trading strategy employs additional filters to spot entry points. Employing auxiliary indicators reduces the number of false signals and gives an opportunity to enter the forex market with additional confirmation. Depending on where you think the pair’s price is heading, you may want to take a long (buy) or a short (sell) position.
Each of them has a different color and is responsible for a particular stage due to the development of forex markets. Other more complex instruments, included in the Profitunity system serve to filter signals and to detail the entry and exit points in the overbought and oversold markets. Thus, Bill Williams developed an independent trading system and started to teach traders to use it for investment business. The “Trading Chaos” is still popular and has many followers, and the Williams indicators are still popular. Statistically, most markets remain range bound for around 70 percent of the time and trends only around 30 percent of the time.
In the lower-left of the chart, the Alligator opens up, and an uptrend remains in place for some time. This is followed by a buy signal to the upside, which results in a brief uptrend. As the price pulls back, the Alligator is sated, and then it opens again for a big uptrend. This https://1investing.in/ is followed by an extended sideways period, in which the indicator lines crisscross back and forth. This is a sleeping phase, and most traders are best to stay away. At the far right of the chart, the Alligator is opening its mouth again, or awakening, signaling a downtrend.
How it is Calculated — Williams Alligator Formula
During the course of a trade, we can find ourselves changing strategies depending on the market. Instead of using many different templates, I have a simple indicator that clearly says “Buy”, “Sell” or “Stay Out”. The great thing about this approach, is we instantly observe the majority are in agreement and that decides which way to place our trade. You can determine the length of pullback needed by choosing where price has to pull back to. Here you can see obvious pullbacks that have pulled to the green and red line while the blue kept the upwards slope. You want to see all lines pointed in the same direction, in order.
The Williams Alligator is an excellent market analysis tool suitable for both a beginner in training and an experienced professional trader. Although the indicator was created a long time ago, it still works. To enter a sell trade, the Alligator lines should start sloping down, and the Alligator should be waking up. The Lip line should be below the Teeth, and the Teeth should be below the Alligator’s Jaw.
Understanding the Williams Alligator Indicator
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. The reason for this can be found within the formula of the TEMA.
Knowing the psychology and understanding the principles of behavior of market participants, the zones of accumulation and the price’s exit points from these zones are determined. We have three lines that are moving above prices, So, we got a sell signal. You may find that you need to optimize mentioned strategies, and this is normal you can do that to reach the best formula that can be useful for your trading style. Choose the currency pair that has a weak current trend in the market with a solid potential to reverse.
How to interpret Alligator indicator
The moving averages converge when the market is in a range or consolidation, and Bill recommends staying out of the market during such conditions. So, when the three moving averages in the indicator are intertwined, the market is said to be sleeping. Of course, the longer the beast sleeps, the hungrier it will be when it wakes up. This perfectly corresponds to how an alligator opens its mouth — the lips first, the teeth, and then, the jaws.
What Are The Advantages of Using The Alligator Indicator?
How the indicator is calculated is important for understanding the inner workings of the indicator. The Alligator indicator can be added to your charts from the indicator list in your charting or trading platform. All information on The Forex Geek website is for educational purposes only and is not intended to provide financial advice. Any statements about profits or income, expressed or implied, do not represent a guarantee. Your actual trading may result in losses as no trading system is guaranteed.
What are the pros and cons of the Alligator indicator in trading?
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You monitor the condition of the three smoothed moving averages to determine what state the “Alligator” is in. This is where you refer to any of the Williams Alligator trading strategies we discussed. You could use the crossover, the breakout, or even combine the indicator with other indicators to identify trading opportunities. By the way, the periods of these smoothed simple moving averages were not chosen randomly; Those are numbers based on the Fibonacci sequence. In the Fibonacci sequence, the first two numbers are 0 and 1, and the following number is the sum of the two numbers immediately before it. Steps “2” and “3” represent prudent risk and money management principles that should be employed.
Based on this formula, we see that the value of each indicator line can be calculated manually. However, Alligator is present in every Forex trading platform by default, so there is no need to calculate these values yourself. 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. The Alligator is an element of the Profitunity trading system, which also includes the Accelerator Oscillator, Awesome Oscillator, Fractals, Gator Oscillator, Market Facilitation Index, and so on.
The sleeping period is shown when the lines are intertwined and close together. As the trend power decreases and eventually comes to an end, the balance lines come closer together. The fast green line making cross back over the slower lines tells us that the Alligator has had its fill of food and therefore satisfied, thus a sign for you to take your profit. The alligator indicator trading system most important feature of this indicator is the way it helps you to stay with a continuous trend. One of the downfalls of the indicator is the difficulty it presents — where to enter the market on time is often difficult to spot. When the Alligator is pretty full and has lost interest in the food, it closes its mouth (lines intertwine or move closer together).
