We can notice the formation of a trend when the fastest moving average crosses the other two lines. The strength of the trend will reflect the length of the sideways movement. The bigger the distance between the lines, the stronger the trend is.

Overall, the Williams Alligator indicator is one of the leading indicators all around the world. It became popular because of its accuracy and simplicity. Wait for the fastest line to cross the other lines upside down. Remember that other indicators may give a confirmation too. We’ll talk more about it in the “How to Combine the Alligator Indicator” section. Research & market reviews Get trading insights from our analytical reports and premium market reviews.

Let us remind you that the more frequently the price touches the fastest moving average , the sooner the trend will end. As a result, the most common mistake is that traders close the position earlier than they should. Nevertheless, detailed ufx broker review it’s more important for a trader to determine the direction in the initial stages. You can learn the trend direction following the fastest moving average. If it crosses other lines from top to bottom, it’s a signal to sell.

The target of an uptrend is to break through the important high. On the new trading day of January 20, the market closes at the price rise. At the European session, there was a try to reverse the trend down.

The absence of a trend

This example is the alligator that alternates between the periods of sleep and hunting. The indicator consists of three moving average lines of different periods overlaid on a price chart to show when the market is in a range or trend. From our point of view, the best entry points for the short position were the forex order types tops marked with number 6. According to traders’ terminology in moving averages it was a test of the MA , but does it sound convincing enough to risk your money? The information obtained from the cluster analysis method sounds more reasoned. It is often required to use additional filters for trading signals.

• It’s because of this that it should be relatively simple for most traders to start to use it almost immediately.
• Open any timeframe you want to trade on and implement the Alligator indicator.
• You can see in this graphic the 3 lines mixed together.
• For this reason, the Alligator doesn’t allow multiple treatments in any market, and parameters of lines change very seldom.
• In that case, they point in one direction, then the Alligator has woken up, and the hunt will begin soon.

In principle, the Alligator technical indicator is a combination of Balance Lines that use fractal geometry and nonlinear dynamics. Determine significant support and resistance levels with the help of pivot points. Hello I’ve decided that the alligator lines can be used to find a trend. This script expands on that and checks 10 different multipliers to see trend over the long term and have 10 values. Those 10 values each give a color to one of the 10 lines in turn giving this Fire like plotting.

Wait for a breakout

The Alligator Indicator uses the previously mentioned 5, 8, and 13 smoothed moving averages. These are all Fibonacci numbers, so it makes sense that there will be a certain amount of mystique around the indicator as a lot of traders like the idea of using Fibonacci. A significant flaw is that you need to adjust the Alligator technical indicator parameters for each timeframe individually. However, with this approach, there will be a lot of signals in short timeframes, half of which will be false. In long timeframes, on the contrary, there will be fewer signals, and you will have to wait for entry signals for a long time.

This is followed by a buy signal to the upside, which results in a brief uptrend. As the price pulls back, the Alligator is sated, and then it opens again for a big uptrend. This is followed by an extended sideways period, in which the indicator lines crisscross back and forth. This is a sleeping phase, and most traders are best to stay away.

Why the Alligator Indicator Matters

The 5-period moving average represents the lips; the 8-period moving average represents the teeth; while the 13-period moving average represents the jaws. Bill Williams used the different parts of an alligator’s mouth to describe the three moving averages. The Bill Williams Alligator Indicator is a great trend following type of indicator, but it must be noted that you should be aware of whether or not the market is trending or not.

The exit signal appears when all three lines meet at one point, the trend direction is not clear, or when the lip line crosses the one of the three lines which is the jaw. This means that the market is full and will now “sleep” in anticipation of new prey . As you know, when we trade forex, the market can be either trending or consolidating. The price moved in momentum for about 30% of the entire time; it trades in correction or accumulation for 70% of the time.

This is when many traders avoid taking a position because the trend is too weak. Meta, formerly Facebook, has an alligator “awakening” signal near the bottom left of the chart, then embarks on a strong uptrend that shows an alligator “eating with open mouth” phase. On the rise, the price drops to the Jawline, but the indicators do not cross each other. An alligator “sated” sell signal arrives when the Lips cross below the Teeth and Jawlines and lines intertwine as the price moves sideways.

Indicator’s Numbers

The indicator applies convergence-divergence relationships to build trading signals, with the Jaw making the slowest turns and the Lips making the fastest turns. 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.” With moving averages on lower time frames, you can get a ton of whip back and forth. As with any trading strategy, it is vital that you test it, lay out a trading plan, and ensure risk management is priority one. Trading the financial markets is not as easy as many make it out to be.

How the Williams Alligator Indicator Works

The red rectangle is the mouth opening for the alligator to eat again, this time driving to the downside. According to the description Bill Williams himself uses, there are a couple of ways to describe what’s going on. 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. The “Trading Chaos” is still popular and has many followers, and the Williams indicators are still popular. The jaw is the 13-period smoothed moving average that is moved into the future by 8 bars.

The red line is known as the teeth while the blue line is the jaws. The chart below shows the Williams Alligator applied in a Microsoft chart. Remember, forex is a volatile market and a currency pair can experience a price movement of several pips in a very short period of time. Always perform thorough technical and fundamental analysis before opening a position. A Bollinger Band® is a momentum indicator used in technical analysis that depicts two standard deviations above and below a simple moving average. The Williams Alligator Indicator is a technical analysis tool that is used to identify and gauge the strength of a trend.

Second, the start of a new trend, and thirdly, the direction of the trend. One common momentum oscillator that is usually combined with the Alligator is the accelerator oscillator — another indicator developed by Bill Williams. With the lips and the teeth separating from the jaw, the Alligator has completely opened the jaw and started feeding. However, where you find it depends on the charting platform you’re using. If you’re using Tradingview, simply go to the ‘indicator & strategy’ section and search for diy financial advisor: a simple solution to build your wealth. At both of those arrows, the Alligator Indicator is letting you know that the market is extremely bearish, and you should be hanging on to short positions.

To enter a buy trade, the Alligator should be waking up. The lip line should break through the teeth line upside, and the teeth line should cross the jaw line from bottom to top. The strength of this trend will be proportional to the time the Alligator slept. The longer the market has been in the accumulation zone, the stronger the momentum will be.

When the mouth opens, it signals that you should enter a trade. Now you need to spot a moment for the price to start to trade above or below all three lines of the indicator. The individual traders betting against the big traders face a high risk of becoming prey, losing money, and leaving the market.