Williams Alligator Indicator Trading Strategy and Tips

Parameters may change upward during periods of high volatility. The breakout of the counter-trendline after a pullback to the Alligator lines may be a sign of trend resumption. Of course, you should be looking to go short at any opportunity you get, which will likely come in the form of a pullback that might temporarily bring the lips and the teeth together. However, where you find it depends on the charting platform you’re using.

  • The price can go beyond the green line for the short periods of time.
  • One of the biggest drawbacks is that the alligator indicator can give false signals.
  • In this case, you should look for an entry in the opposite direction.
  • The strength of this trend will be proportional to the time the Alligator slept.
  • Suppose the price is above or below all the indicator balance lines and the moving averages already indicate a specific direction.

In most cases, the William Alligator is not a popular one in scalping. Instead, traders tend to use indicators most profitable trading strategies like VWAP and moving averages. Bill Williams refers to these moving averages as “balance lines”.

In most cases, it rarely works when assets are in a consolidation phase. In the Eating phase, the Alligator’s lines are fully spread apart, with the Jaw, Teeth, and Lips in ascending order from bottom to top. Breakouts from the previous range-bound conditions are more likely to happen, offering trading opportunities in the direction of the emerging trend. If you are looking to trade forex online, you will need an account with a forex broker.

But there will be many false buy or sell signals in this case. If the momentum is supported by other traders, then the mouth begins to open wider and wider. The balance lines of the lips, teeth, and jaws point in the same direction.

It is based on the moving averages, i.e., it is the derivatives of the moving average. And the moving averages themselves are already a derivative of the price. The strategy suggests not every trade will reach the set Take Profit, and it is normal. If the market conditions change unexpectedly, traders exit trades manually. 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.

Advantages of Using the Alligator

For a downtrend, a bearish color of the AC bars after a pullback to the alligator lines is a signal to go short. But there are factors to consider before getting into such a trade. The green line crossing the other two moving averages and chasing the price is one of the indications that the Alligator is waking up and getting ready to feed. There is no trend when the three moving averages are intertwined.

There are a few important things that you need to learn, from what is the alligator indicator, how it works to how to use it in forex trading. The sleeping period is shown when the lines are intertwined and close together. Swing trading is a thematic trading strategy that involves buying or shorting an asset and holding it for a few days. It is different from day trading since traders are usually open to overnight risks. In most cases, buying opportunities emerge when the three lines make a crossover. The lips are usually the inside ones followed by teeth and jaw, as shown below.

  • On the rise, the price drops to the Jawline, but the indicators do not cross each other.
  • It would be a good idea to set a stop within your comfortable parameters of loss – below the low of the engulfing candle.
  • So, it is obvious that you should have a clear understanding of what those numbers are and their meanings.
  • One of the downfalls of the indicator is the difficulty it presents — where to enter the market on time is often difficult to spot.

The Alligator indicator can be added to your charts from the indicator list in your charting or trading platform. To increase the performance of trading signals, you should use additional filters such as Fractals. This is the level of the previous bar local highs which shows the past performance of the asset’s trading dimensions.

Summary of Alligator settings

When the alligator indicator is used as a reversal tool, it is less accurate because reversals are more difficult to predict than trends. This means that you would only take trades in the direction of the alligator indicator. The second way to use the alligator indicator is to use it as a reversal tool. This means that you would take trades in the opposite direction of the alligator indicator. 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).

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 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.

But do not worry; the alligator indicator does the calculations and brings results to you as lines of a graph. This is just to help you understand what is happening behind the curtains. td sequential indicator 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 side.

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. The lips of the Alligator, the green line, is the fastest moving average and will be the first time lost trader one a trader will want to monitor. You want to see the green line cross both of the slower moving averages. From those states, a trader can determine if they will use a range trading strategy, a trend trading strategy, or wait for a breakout strategy to be used.

Williams Alligator Indicator Trading Strategy Tutorial

Before getting into using the indicator, you must understand and learn how to read the Alligator indicator and its data. Moreover, there are a few things that any trader must do if they are to get the best out of the indicator. If you are interested in using the Alligator indicator in your forex trading, keep reading to learn everything you need to know about it. By looking at all three of these factors, you can get a pretty good sense as to whether a market is due for a big move in the near future.

Alligator settings for H1 timeframe and shorter

The alligator indicator is a tool used by traders to help identify trends in the market. The alligator indicator is made up of three moving averages, which are set at different periods of time. The alligator indicator is typically used on longer timeframes, such as the 4-hour or daily chart. The alligator indicator serves to determine the moments of the flat, to give signals of the beginning and end of the current trend. From a technical point of view, this is a set of moving averages shifted forward relative to the current price by a certain number of bars. If you want to adjust Alligator settings to different timeframes, you should perfectly understand this indicator’s work principles.

Forextraders’ Broker of the Month

As mentioned above, the Williams Alligator indicator is known for pushing false positive signals when the three lines are criss-crossing amongst each other. This can happen often and is often due to choppy market conditions. This is referred to as “sleeping.” So what should traders do if their indicator is “sleeping? It is one of the major drawbacks of the indicator because too many awakening signals within a large range will most likely fail, and it could end up triggering whipsaws. That is when the price sees an extreme directional pivot that can alter trades and trends.

Accumulation/Distribution Indicator (A/D) — How to Identify and Use It

The indicator is available on the popular MetaTrader trading platforms MT4 and MT5. You’ll find it when you open the list of your Indicators and Bill Williams from there. Another way to use the Williams Alligator indicator is to identify trend reversals and continuations by looking at the three lines. But when constricted, it signals that a trend is about to end or that the market is in consolidation.