Once you know how to recognize a sideways market from a trending market, you can use the indicator for your William Alligator strategy. The default settings are solid for short to mid-term trading. If you want it to oscillate less for long-term trading, enhance the length to a longer period.
The “permission” to enter a long position on the Alligator indicator occurs at point number 2. However, the price has already gone high enough from the lines, moreover, it is time for the American session to close. Taking all these factors into account, we can see that the potential is low but let’s say we enter the long position. When the MACD line crosses above the signal line and is rising above the zero line, it is a strong indication of a possible uptrend move or bullish trend. The periods, type of moving averages and parameters of shift correspond to Fibonacci’s number due to that steadily compensate the effect of mutual delay.
Data collection notice
Harness past market data to forecast price direction and anticipate market moves. On the far right, you can see this pullback failed however there was not break above the yellow line before price began to close under the 3 lines. You can determine the length of pullback needed by choosing where price has to pull back to. Here you can see obvious pullbacks that have pulled to the green and red line while the blue kept the upwards slope. You want to see all lines pointed in the same direction, in order. When the 3 lines of the Alligator indicator are intertwined, the Alligator is sleeping.
It is clear when to open a buy or sell position and when to close. Personally, I prefer to use the indicator on the H1 timeframe. This is the optimal timeframe for short-term trading with a trade holding time of 1 to 5 days. A moderate amount of market noise, combined with frequent and clear signals for currency pairs, makes it possible https://forexhistory.info/ to focus on a few popular financial instruments and trade without psychological stress. Some traders close the trade manually if the instrument reaches the important and strong level on the longer timeframe chart. Another reason to exit a trade manually if the price passes the average daily move (suitable for intraday traders).
Range Scalping Using the Williams Alligator
Taken together, the balance lines form the “mouth” of a hungry alligator, ready to hunt for inexperienced traders and other market participants who trade against major players. Note that at the first stage, Alligator is in a sleeping phase, and the three smoothed moving averages are at the same point. To adapt the technical analysis indicator to different timeframes and markets, you should adjust the parameters (certain price periods and shifts) of the moving averages. You can also trade with the default parameters, but, in this case, you should trade in longer timeframes from H4 to D1.
At the far right of the chart, the Alligator is opening its mouth again, or awakening, signaling a downtrend. The Alligator indicator uses three smoothed moving averages, set at five, eight, and 13 periods, which are all Fibonacci numbers. The initial smoothed average is calculated with a simple moving https://trading-market.org/ average (SMA), adding additional smoothed averages that slow down indicator turns. The market would allow a trader to take profit at three different points. First, a trader could place a support level at the nearest lows (2). However, as the trend was solid, they would miss an opportunity to gain more.
The Best Williams Alligator Trading Strategy
The latter point is one more rule to follow – stay in the trade while the three lines are apart. If the Green line goes flat for a period, it is also time to consider closing the position. On the front end, it is also considered overly aggressive to open a position after the Green line only crosses the Red one.
- Now you need to spot a moment for the price to start to trade above or below all three lines of the indicator.
- Below we’ve laid out illustrations to help you get started with the indicator.
- However, this time the square is green, which indicates large buy market orders.
The Alligator indicator is an on-chart trading tool created by famous trader and author Bill Williams. Updated an existing Divergent Bar script https://forex-world.net/ to be able to show all divergent bars. The original one based on price and alligator lines, and a new second one that shows ALL divergent bars.
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First, analyze the stage of the Alligator cycle – if it is sleeping, waking or eating. If the Alligator is falling asleep, exit the trade before start losing money rapidly. Do not trade forex or other market when the Alligator is sleeping.
For sell signal confirmation with combination with the MACD indicator, when a sell signal is generated by the Alligator indicator, the MACD indicator can confirm this signal. When the MACD line crosses below the signal line and is falling below the zero line, it is a strong indication of a possible downtrend or bearish trend. When applied to a chart, this indicator plots three moving averages on a separate subgraph from the price data. As you can see, the TEMA bounces above and beneath the price action. The thing that may not be apparent on the chart is the TEMA reduces lag usually created by the other moving averages. The Alligator indicator has three lines – green, red, and blue.
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Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. Make sure your chart is set to display candles and then wait for the short signal, which is identified by the averages crossing downwards and widening (parallel to each other). If it looks like the trend is set to continue, and a bearish engulfing candlestick occurs, this could be a signal to sell. Remember to set a stop a few pips above the high of the engulfing candle. To get the alligator indicator formula, you must first determine the median price of each candlestick, which is calculated as (high price + low price) / 2.
The green balance line crosses the red one, and the red line crosses the blue one. The above figure displays the hourly timeframes of the BRENT oil price chart. In the hourly timeframe, I prefer using the following settings of the indicator 21;13;8, but I will cover it in detail later. The majority of trades see the trend exhaustion, the accumulation zone forms, there arises uncertainty.