Alligator indicator is used for technical analysis in the foreign exchange market Forex. Otherwise, it can be called trend Alligator Bill Williams, who was its author. Alligator gained its popularity after the publication of two books of Williams, which is a detailed description and application.
It is noticed that most of the time the price ranges in a trading range, without going beyond it. Inexperienced trader at this point is difficult to make money. Truly trend movements of the market when you can see a clear bullish or bearish trend , get on it and make money on it, there are only 20-30% of cases.
The main purpose is to filter Alligator periods Fleta (lateral movement of the price) and a pronounced trend. It analyzes the situation occurring in the market at the moment, and gives us a signal to change the trend (the formation of a trend). Interestingly, the alligator is almost universal, as is applicable to all time frames.
Description Alligator Bill Williams :
In the construction of the indicator used median price, which is half the sum of the maximum and minimum of a candle.
Alligator indicator is expressed visually by three painted in different colors, moving averages, each of which is biased in different ways and has its own parameters (5, 8 and 13).
- Blue Moving Average ("Alligator jaw") - this 13-day average, shifted by 8 bars ahead.
- Red moving ("Alligator Teeth") - 8-period moving average, moved by 5 bars ahead.
- Green Moving Average ("Alligator Lips") - is the smoothed 5 period average, moved forward on the chart for 3 candles.
Interweaving in some form of sliding lines gives us different signals. If the moving average Alligator intertwined, then the market is in a state of the flat (sideways). In the case when the moving averages in different directions - a sure sign of the beginning of a new trend.
The longest blue line - "Alligator jaw" is the most long-term analogue fair market price. Otherwise, it is called "Line of Balance." When the price is above the "Jaws", the market will continue to move up, but if the price is lower - the price will continue to move downward.
The other two moving averages are evaluated on the same principle, but for the short term.
Bill Williams in the description of the Gator wrote that if all moving intertwined - Alligator is asleep. The longer the sleep, the hungrier it gets. Otherwise, it can be said that the market in this moment was flat and the price is in the narrow range.
Waking up when the moving apart, Alligator "begins there" - he hunts for the price, is not completely satisfied. The longer was the state of the flat on the market, the stronger will be the next move of the market.
After the alligator ate, moving averages again begin to converge. In this case the trader should close their positions and wait for the beginning of a new trend.
The use of trade signals Alligator:
- Determination of the degree of strength of the trend
The farther away from one another moving average, the stronger the current trend. When they start to interfere with each other and the price - the trend is over.
- Determining how to enter the market
The start of a new trend on the background of the current Fleta says increasing the distance between two moving. The direction of the new trend will show us the first fractal, after the appearance of which it is possible to prepare for the trade.
Put an order to buy or can at a fractal, or a little higher. All three moving averages must be below the fractal. For sale shall be the return signal when fractal is below the moving. For more accurate input can wait until another fractal, which should be higher (to buy) or below (for sale) in the previous fractal.
- Stage to enter the market
For more accurate input to be confirmed as a second fractal, which to buy should be higher, but for sale - below the previous fractal.
- Addition of a trading position
It also requires additional fractal, which is higher than the previous.
- Installation of stop-loss
In this case, the decision should be taken based on the level of risk and money management strategy trader. Stop-loss can be set to any level of the moving average. Please keep in mind that the stop-loss set at short moving, can lead to early closure of the positions and lost profits. Setting a stop loss at 13-period line could face significant losses.
The biggest advantage of this indicator is that it is very accurate, to avoid double interpretation of most signals. Thoroughly mastered the Alligator indicator, understanding how it works and all the features in your hands will be quite powerful technical analysis of the market situation.