Similarly, exit all sell positions when the lip of the alligator indicator crosses the teeth and the jaw to the upside. It could get you into trends early but also get you into trouble with false signals just as often. As such, it is best to use a tight stop loss and combine this strategy with other technical indicators. When the alligator’s lip, teeth, and jaw are close, Bill Williams says the alligator is ‘sleeping’. But when the lines are far apart, the alligator is said to be awake and, therefore, it provides trading signals.
When Is the Best Time to Use the Williams Alligator?
- 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.
- Each of them has a different color and is responsible for a particular stage due to the development of forex markets.
- You can find the Alligator in the list of classic trend indicators of the MetaTrader terminal, as well as in the personal profile of the LiteFinance brokerage company.
Most of the positive reviews boil down to the fact that the Alligator technical indicator is simple and its signals are clear. It is clear when to open a buy or sell position and when to close. As we use the Alligator momentum indicator alone, without any additional filters, the stop-loss orders should be placed beyond the local lows and highs, depending on the trend. Take Profit levels are set at the breakthrough of important high and lows. When the price hits the highest high in the chart, the price enters a consolidation range. The green balance line crosses the red one, and the red line crosses the blue one.
Interpretation of Williams Alligator
This usually means there isn’t much happening in the market, and it might be a good idea for traders to look for something else to invest in. The Alligator Indicator Strategy is an exceptional trading methodology introduced by the legendary trader Bill Williams, who also created the fractal indicator. This comprehensive guide will enlighten you on how to leverage this powerful trading tool, enabling you to significantly boost your trading performance.
For some traders, this crossover may signal a potential entry point; for others, it alerts them that a significant market movement may be underway. The direction of the cross (upward or downward) indicates whether the potential trend may be bullish or bearish. The main drawback is Williams’ decision to use moving averages, which are the most lagging technical tool. But when you operate more or less stable markets, such as gold or currency pairs, such a tool is justified. Finally, remember that when signals are confirmed by oscillators on higher time frames from H1 and above, the Alligator indicator allows you to confidently predict the trend in many cases. The Alligator Indicator also provides signals based on the divergence or convergence of the moving averages.
What Is the Williams Alligator Indicator?
You need to learn to identify the market state – when the Alligator sleeps and when it is waking up. It is important to filter signals generated by the Williams indicator to increase the number of profitable trades. 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. 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.
You can change the Opacity to lighten the lines by sliding the Opacity scale or clicking the minus and plus buttons. To change the color, style, or other parameters, select the settings icon next to the indicator and modify the parameters. Each one is offset forward (into the future) to indicate convergence/divergence relationships. Get our latest insights and announcements delivered straight to your inbox with The Real Trader newsletter. You’ll also hear from our trading experts and your favorite TraderTV.Live personalities.
You can use the default settings or change whichever parameter you want. This perfectly corresponds to how an alligator opens its mouth — the lips first, the teeth, and then, the jaws. Then the Alligator woke and an uptrend commenced (indicated by the third arrow), the “eating with an open mouth” phase.
The Teeth are crucial for me as they bridge the gap between the long-term trend indicated by the Jaw and the short-term trend suggested by the Lips. The offset values (e.g., offset by 8 bars) determine the positioning of the lines into the future on the price chart, allowing traders to see potential trend changes. The Williams Alligator indicator is a great tool used for technical analysis.
This market state is characterized by uncertainty, and one shouldn’t enter trades during this time. Traders who enter trades against the trade by mistake are doomed to failure. With the beginning of the trend, it begins to “open up” and “eat.” powertrend Let’s take a look at what signals the Alligator generates. The jaw line is at the top, below is the teeth line, and the lip line is the lowest. As the downtrend develops, the distance between the balance lines is increasing.
The accuracy of the Alligator Indicator Strategy depends on several factors, including market conditions, the trader’s skill and experience, and effective risk management practices. You can choose the colors and the thickness of the lines as you want. The most important is that it is comfortable for you to analyze the chart, and the technical analysis indicator doesn’t prevent you from seeing bars.
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. Moving averages, as the name implies, show the average price values over a certain period. Therefore, if MAs are in the same place on the chart and do not show any direction with their slope, then the market is not trending.
Introduction to the Alligator Indicator
This allows them to ride the trend and potentially maximize their profits. The following analogy explains how the Alligator indicator operates. The avatrade review Alligator is said to be tired or sleeping when all three moving averages (Mas) are intertwined — i.e. the jaw, teeth, and lips are closed, indicated by the black arrow. At this particular point, many traders will avoid taking a position as this is perceived as a weak trend or consolidation, as shown in (fig 1.0). Williams said that individuals and institutions tend to collect most of their profits during strongly trending periods.
Divergence Plays
- By plotting the three moving averages of the alligator, traders can determine the direction of the trend.
- The indicator also does not take into consideration fundamental factors when determining buy and sell signals, which could lead to losses.
- The Lips can often act as the trigger line for entering or exiting trades.
- The Alligator’s jaw is projected as a blue line and begins with the 13-bar SMMA.
Different market conditions may require different settings, so it is crucial to find the settings that work best for your trading style and the specific market you are trading. By adjusting the time periods, you can fine-tune the indicator to better suit the current market conditions and improve its effectiveness. Additionally, traders should be aware that the Williams Alligator Indicator, like any other technical analysis tool, is not foolproof and can provide false signals. It’s important to combine it with other indicators and analysis techniques to increase the probability of accurate predictions.
Thus, when a support or resistance level forms a confluence with the Alligator lines, a trade setup at such a level will carry a higher chance of success. When the Alligator is asleep — the lips, teeth, and jaws intertwined — the market may likely be in a range. As you can see, the indicator uses the principle of convergence and divergence of the moving averages. Theoretically, Bill Williams believed that the market only moved in trends 15% to 30% of the time.
This is the optimal timeframe for short-term trading with a trade holding time of 1 to 5 days. 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. The Alligator begins to wake up when the distance between the lines begins to increase. On the right side of the chart, we see that the price is trading below the lines, and they acquire a downward direction. Next, the price breaks through the Alligator lines and updates the local minimum.
This corresponds to the moving averages speeding away from each other, which happens when the price is trending. 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 hycm review an uptrend. For a market like this that is often in an uptrend, you can use the Alligator to spot potential retracement and use it to hedge your position.
Finally, the shorter-term moving average, known as the Lips, represents the fully awakened phase, where the market is in full swing. Interestingly, the moving average lines of the Alligator indicator act as dynamic resistance levels in a down-trending market, so pullbacks tend to reverse around those moving averages. The sleeping period is shown when the lines are intertwined and close together. While that trade management strategy is the easiest, it isn’t usually the most practical strategy. Other ways to set your targets include using market structures and price action tools, such as support and resistance levels.