What Is the Williams Alligator Indicator and How Do You Trade It?

The Alligator indicator can be added to your charts from the indicator list in your charting or trading platform. When the Alligator is feeding, watch for pullbacks against the main trend direction and trade those moves with a pullback strategy. Once the lines have shown a direction, you can resort to using a price pattern that is a staple of all traders – pullbacks. At this point, you have learned how to setup and use the Williams Alligator to determine the state of the market and the trend direction.

• This will be the signal to buy in a confirmed uptrend or to sell in a confirmed downtrend.
• These lines imitate the process of an alligator’s hunting.
• If they move down and widen even more, it’s a strong downtrend signal.

Nevertheless, some traders, especially beginners, make mistakes using it. Other types of moving averages are simple, exponential, and weighted. The trade is moved to the breakeven, according to this strategy, when the Jaw line (the blue one) is below the entry price for a sell trade and above the entry price for a buy trade. Expect when the hourly candlestick breaks through the most recent downward fractal and closes below. You wait for the moment when the hourly candlestick breaks through the last formed upward fractal and closes above the high.

Learn to trade

In summary, the Alligator indicator does help the trader stay in the position for a longer period. Williams also developed a “Gator” histogram indicator to help visually with its interpretation and provide another means of validation. Then the terrible jaws open up – the blue line is lined up in the same direction with the rest. Using those balance lines, also known as moving average lines, the investor can understand when to conduct investment business at his own risk or by using professional investment advice.

If the three moving averages are stretched apart, that is generally a sign that you are in a trend and should maintain whatever the position is. It’s very easy to add the indicator to the Metatrader platform, as it’s already built in. All one has to do is click on Insert, select Indicators, and then follow that with Bill Williams, finally select the Alligator option after that, which will set the indicator active. Then, you get the Alligator options box, which has several different things that you can change. The basic options include the Jaws period, Teeth period, and the Lips period.

The trend may start

Williams refers to the downward cross as the alligator “sleeping” and the upward cross as the alligator “awakening.” The longer he sleeps the hungrier he becomes – the longer the market stays without a trend, the https://forexhero.info/fortfs-forex-broker/ more vigorously it will break into a new trend. When the trend starts, Alligator wakes up and opens it mouth (3 lines get into order and start to move apart) – this is the time to start trading with a trend.

A fractal formation in the market is made up of 5 bars, in which the third bar (middle one) represents either the highest high or the lowest low. The Fractal indicator prints arrows on these highs and lows. An arrow above a price bar is a buy fractal, whereas an arrow below a bar is a sell fractal. A buy fractal serves as resistance, but a break above it triggers a buy signal. Similarly, a sell fractal serves as support, but a break below it triggers a sell signal. The Fractal indicator is a trend following tool that is functionally similar to the Parabolic SAR.

Trend Direction

These settings reduce the market noise and filter signals. With these settings, you will get a couple of reliable signals for day trading, which is still good for a day trader. Suppose the price is above or below all the indicator balance lines and the moving averages already indicate a specific direction. In that case, they point in one direction, then the Alligator has woken up, and the hunt will begin soon. It is the first to react to the changes in the balance of buyers and sellers in the price chart.

The picture below shows a gold futures chart, hourly timeframe. The data was taken from the COMEX exchange (part of the CME Group). Delta and Big Trades indicators have been added to the chart. Basically, the Alligator is a multiple displaced moving average system. I find this trading method similar to the moving average fake-out by Mark Fisher which also uses three moving averages.