You should keep one thing at the back of your mind though — being a moving average based indicator, the Alligator does significantly lag the price. Moreover, the moving averages are shifted by 3, 5, and 8 periods into the futures. When an alligator wakes up, it opens its mouth in search of food. This corresponds to the moving averages speeding away from each other, which happens when the price is trending. The indicator applies convergence-divergence relationships to build trading signals, with the Jaw making the slowest turns and the Lips making the fastest turns.

We research technical analysis patterns so you know exactly what works well for your favorite markets. Traders will then want to observe for a cross of the blue and green lines. They also observe for a close of a candle through the lines of the indicator before taking action. The indicator makes use of convergence-divergence relationships to develop trading signals. The Jaw makes the slowest turns and the Lips make the fastest turns.

Risk management when using the William Alligator

It is the first to react to the changes in the balance of buyers and sellers in the price chart. When the lip line crosses slower MAs, we beaxy review could assume that the trend is about to start. Moving averages, as the name implies, show the average price values over a certain period.

• This will help get rid of false signals in the sleeping phase of the Alligator indicator.
• Take Profit levels are set at the breakthrough of important high and lows.
• Since then we have continuously created the new and improved the old, so that your trading on the platform is seamless and lucrative.
• Employing auxiliary indicators reduces the number of false signals and gives an opportunity to enter the forex market with additional confirmation.

The jaw is the 13-period smoothed moving average that is moved into the future by 8 bars. The teeth is the 8-smoothed moving average that is moved five days into the future while the lips is the 5-period smoothed moving average that is moved by 3 bars into the future. Williams Alligator indicator is a complex, but very important and profitable technical analysis tool.

Bill Williams used the different parts of an alligator’s mouth to describe the three moving averages. As one of the few indicators that use a multiple moving average strategy, the component moving average lines have specific default colors to ensure clarity. Additionally, the indicator can help traders identify impulse and corrective waves. However, you only appreciate those better when you combine the indicator with a momentum indicator.

Using alligator with other indicators

Above is just a basic guide on Forex transactions to get acquainted with the Alligator indicator. In the following articles, I will bring along some classic trading strategies with this indicator. Listed below, there are primary advantages and disadvantages of the Alligator, for you to decide if the Alligator trading strategy suits you or not. These are the Alligator indicator default parameters offered in the LiteFinance client profile. In this case, you should look for an entry in the opposite direction. There is no point in holding the trade even if the Stop Loss is set beyond the blue.

Support

Dumblittleman does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. Examples are hypothetical, and we encourage you to seek personalized is forex.com a brokerage firm we can trust advice from qualified professionals regarding specific investment or financial issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance.

He developed the Profitunity trading system based on the combination of the technical indicators created by Bill Williams. The trading system applies Fractals and Awesome Oscillator oscillators as additional filters to define entry points. To interpret the William alligator, the first thing you need to do is to understand what the three lines mean. As mentioned above, the three lines are the smoothed moving averages (SMA) of different periods.

When the lines converge, it indicates that the alligator is sleeping, and when they diverge, it means the alligator is waking up and ready to hunt. Traders can use this indicator to enter trades in the direction of the trend and exit when the lines start to converge again. It is a technical analysis tool that uses a combination of three smoothed moving averages, each displaced into the future, to help traders identify the start and end of trends in the market. The term “displaced” refers to the fact that each moving average is adjusted X bars into the future, which is believed to improve the indicator’s ability to forecast future trend direction.

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

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. However, an important thing to note when backtesting the indicator is that it looks like a heavily lagging indicator at first glance.

EneX is signal that give recommendation signals for entry and exit on spot market. This indicators not suitable for leverage trading in futures market. EneX signal consider several indicators and has entry and exit rules. EneX signal is suitable for investors who believe in trend following strategy (disclaimer on). The Alligator indicator follows the premise that financial markets and individual securities trend just percent of the time.

The Mcginley Dynamic indicator is an indicator that is based on moving average line indicator with a soothing… A step by step guide to help beginner and profitable traders have a full overview of all the important skills (and what to learn next 😉) to reach profitable trading ASAP. Traders should try what is a-markets to look at a mouth opening during price rise or decline. They slowly close once again when volatility dwindles, showing a potential trend change ahead due to the current trend weakening. When the three lines diverge widely, a trend is strong indicating that the mouth of the alligator is being fed.

Examples of the Williams Alligator Indicator

The Lips crossing down through the other lines signals a short sale opportunity while crossing upward signals a buying opportunity. Williams refers to the downward cross as the alligator «sleeping» and the upward cross as the alligator «awakening.» We can see in the left section of our EUR/USD chart above indicated by the ellipse where all three lines (blue, red, and green) all closed together. This means that the Alligator is sleeping or is tired — implying that the market is not doing anything and that we should wait for the start of a new trend. HowToTrade.com takes no responsibility for loss incurred as a result of the content provided inside our Trading Room. By signing up as a member you acknowledge that we are not providing financial advice and that you are making the decision on the trades you place in the markets.

As it sleeps, it gets hungrier by the minute, waiting for a breakout from its slumber when it will eat. The weakness in the indicator is that timing may lag due to its future positioning, the reason for attaching a momentum indicator to anticipate the Alligator’s signal. The CCI alerts signaled overbought or oversold conditions for each occasion. Candlesticks also provide additional insights into what the expectations of the market might be going forward. Since the calculation process is complicated, using trading software with automated tools makes sense.

MACD Indicator: What Is and How to Use in Forex Trading

Let me explain how to trade with Bill Williams’ Alligator indicator. 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.