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

The name of the indicator is a metaphor that uses the behavior of an alligator to explain the behavior of the indicator in different situations of the market. When it comes to the speed we execute your trades, no expense is spared. Information in this article cannot be perceived as a call for investing or buying/selling of any asset on the exchange. All situations, discussed in the article, are provided with the purpose of getting acquainted with the functionality and advantages of the ATAS platform. The Alligator indicator is included in the package, as well as Big Trades, Delta, market profiles and other indicators. In order to try the indicator performance alone or in the combination with other ones, you can use Forex Tester with the historical data that comes along with the program.

• We have also focused on some relatively unknown indicators like the Keltner Channel and the Donchian Channel.
• That is, the momentum indicator is used in its original form.
• The sleeping state is characterized by a flat, the formation of an accumulation zone, as large traders are adding up to the trades.
• As with any trading strategy, it is vital that you test it, lay out a trading plan, and ensure risk management is priority one.
• If such cross happened during an uptrend, you can buy once the green line returns above the red one.

The second high must be lower than the first one and be followed by a bearish bar. On the contrary, if the indicator formed two minimums below the zero level, and the trough between them didn’t rise above 0, it’s a bullish signal. The second low should be higher than the first one, which should be followed by a bullish bar. Open any timeframe you want to trade on and implement the Alligator indicator. Traders use this indicator to determine the lack of a trend, the period of the trend formation and its direction. In simple, these shifts are the periods are moved into.

The trend may start

The sleeping state is characterized by a flat, the formation of an accumulation zone, as large traders are adding up to the trades. Based on this formula, we see that the value of each indicator line can be calculated manually. However, Alligator is present in every Forex trading platform by default, so there is no need to calculate these values yourself. In the first stage, the predator watches the prey as if it is sleeping. In the second stage, the alligator opens its mouth and grabs the victim, eats food.

The Alligator will chase the price far away and offer a decent profit to a trader. Having eaten enough, the Alligator goes back to sleep , so it’s time to take profit. When the Alligator is showing a crossover of the fast green line above or below the slower lines , with all three lines diverging vantage fx broker review as indicated in fig. The longer the Alligator spends sleeping, the hungrier it becomes when it wakes, and we can expect it to maintain its hunt for food — in this case, a trend in any direction. These periods when trends are forming seem to be the most effective to trade using this indicator.

If the line is broken out, the trend is likely to change. You wait for the moment when the hourly candlestick breaks through the last formed upward fractal and closes above the high. The Fractals indicator looks like an arrow above the Japanese candlestick up or below the candlestick down on the chart.

Combining the Alligator indicator with other tools

At the end of the trading session on January 18, 2021 – the beginning of the trading session on January 19, 2021, the Alligator fell asleep. This market state is characterized by uncertainty, and one shouldn’t enter trades during this time. Open the chart of any trading instrument in the LiteFinance Personal Profile. I will use the gold price chart as an example, but you can trade with any asset like foreign exchange, currency pair, shares, etc. In a trading range, the Alligator’s “mouth” is closed. With the beginning of the trend, it begins to “open up” and “eat.” Let’s take a look at what signals the Alligator generates.

If the price breaks this line, it usually means that the trend is turning in the opposite direction. It is used to spot the entry points in slow trends or in conservative forex trading strategies when traders prefer to trade only in the strongest levels/zones. The Alligator Forex trading indicator is composed of three moving averages, which are called the three balance lines and are the jaws, teeth, and Alligator’s lips. Each of them has a different color and is responsible for a particular stage due to the development of forex markets. In the lower-left of the chart, the Alligator opens up, and an uptrend remains in place for some time. The lines then cross, and two small downtrends develop.

The lips line is the smoothed moving average with the default period of 5, moved by 4 bars into the future. The Williams Alligator analyzes stock indexes, equities, commodity and precious metal markets, Forex trading, and cryptocurrency markets. It is a technical indicator based on the moving averages with different periods. Although the Alligator indicator is one of the most reliable ones, it may also provide fake signals. If the green line crosses the red line opposite to the existing trend and then gets back, it’s a fake cross.

Swing Trading Alerts (+Results)

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 average, adding additional smoothed averages that slow down indicator turns. The Alligator indicator has a unique formula that distinguishes it from a simple set of moving averages.

The course of the moving averages simply identifies the trend direction. If they move down and widen even more, it’s a strong downtrend signal. If they move up and diverge from each other, it’s a sign of a strong uptrend. Note that all three lines are under the price in the uptrend and above the price during the downtrend. It’s the time when our Alligator is sleeping, so its jaw, teeth and lips are serried.

When it breaks above both moving averages, it’s a signal to buy. Even though you don’t need to calculate the indicator yourself, it’s worth knowing what the rules of the lines’ building are. As we said above, the indicator has three smoothed moving averages of 5-, 8- and 13-periods. If you think the alligator indicator is signalling an uptrend, you can open a ‘buy’ position . This enables you to profit from increasing forex prices. If you think the indicator is suggesting a downtrend, you can open a ‘sell’ position , which enables you to profit from falling FX prices.

The financial markets spend 70-80% of trade time in the range without the obvious direction and only 20-30% − in a condition of a trend optimum for profit. 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. The line is the average strength support/resistance level. It serves to enter trades when the trend is not that strong. If the instrument is within the daily ATR , the Teeth line can be an excellent marker for entering trades in the trend.

Alligator Indicator

Indicates the exit from the long position, as the green line moved down. Indicates that the green line moves down, though arum capital overview the order of the lines has not been changed yet. Then there is an upside momentum which is quickly exhausted.

Example of the Williams Alligator Indicator

Unfortunately, the Alligator indicator is not able to capture these important nuances for analysis. When you get a signal to enter the long position, the price has already covered a significant distance in the direction of the initial momentum. Despite the fact that the market is low volatile during the Asian session, the Alligator indicates that traders should be ready to go long as soon as the blue line moves up.

To increase the performance of trading signals, you should use additional filters such as Fractals. To enter a buy trade, the price must be above all indicator lines. The trade is moved to the breakeven, according to this strategy, when the Jaw line is below the entry price for a sell trade and above the entry price for a buy trade. This is the level of the previous bar local highs which shows the past performance of the asset’s trading dimensions.

Trend Formation

The system allows you to trade by yourself or copy successful traders from all across the globe. You can try trading with the umarkets forex broker on the demo account withoutregistration. Listed below, there are primary advantages and disadvantages of the Alligator, for you to decide if the Alligator trading strategy suits you or not. Any MetaTrader terminal offers such parameters by default.

How to start trading

Afterwards, the Alligator wakes up and looks for its prey. The trend strength depends on the length of the sideways trading as the Alligator’s hunger depends on when it was sleeping. 89.1% of retail investor accounts lose money when trading CFDs with this provider. The Lips , which represents a 5-period moving average offst by 3 periods into the future. The indicator is derived from the moving average, which is one of the best-used indicators in the market.