Alligator strategy: We owe the alligator strategy to Bill Williams, who is known for the development of other technical indicators such as fractals. I’m sure you used it once, and you’ll see on the blog that I’ve published some trading strategies based on Bill Williams’ fractals.
But the alligator indicator is not like fractals, this technical indicator tries to use trends when they appear. Most traders have great doubts about technical indicators: trend? Oscillators?
Every trader has to decide what kind of strategy he wants to pursue or in which market situation he feels most comfortable, but we all agree that where more money can be earned, there are trends.
The alligator is anxious to take advantage of trends and to forego those areas where the price remains sideways.
Another big advantage is that we can discover trends when they are set in motion by chasing the famous market reversals, which are usually very profitable.
The Alligator Indicator in the Metatrader 4
The alligator indicator is very simple in its configuration, it consists of three moving averages that are shifted in time.
Of course, Bill Williams must have been a pretty smart man with a lot of humor.
Each of the moving averages of the indicator corresponds to what the mouth of an alligator would be (caiman, crocodile…).
Movable stockings are:
– From 13 periods 8 periods were shifted. They would be the cheeks of the alligator.
– From 8 periods 5 periods were shifted. Corresponds to the teeth of the caiman.
– Of 5 periods, 3 periods were moved. They are the lips of the crocodile.
In Metatrader 4 the indicator is programmed by default with the above parameters, where the moving averages are smoothed and calculated in the middle of the bar.
Moving averages can be simple, exponential, smoothed and weighted. You can also set them to Close, Open, Center…. as well as all long periods and change the shift.
Basic alligator strategy, the perfect order
The alligator is a trend indicator, therefore the basic alligator strategy is to open positions in favor of the trend.
If the three moving averages go in the same direction, this is a clear signal for open positions, either bullish or bearish. It is the perfect order.
If the price touches the lips and is rejected, it is a new signal to open positions as long as it does not fall under the jaw, the trend is safe.
In this situation, the averages act as dynamic support.
The price can be close to the lips, teeth and jaw. As long as the price does not break through the stockings, the trend is safe.
Bill Williams used averages because Ichimoku traders treat their cloud when the price is between averages, there is no trend and you should not act.
Once the price exceeds the averages, the previous trend should be discarded.
It won’t always be a signal to open opposite positions, it may be a sideways movement…. especially if we observe that the averages are strongly linked. It is best to wait until you see a perfect new order.
More Trading Signals with the Alligator
The advantage of the alligator strategy is that we can use the findings from other moving stock crossover systems and apply them here.
If the lips cross the socks of the teeth, but not the jaws, it is usually a new input signal.
It is a signal similar to that of the Lowry Moving stocking system. It is a Delphos or dolphin input.
They are pulls or price setbacks to supports or lost resistances that, once the stockings return to their position, give us a good signal of trade.
Other important crosses are those that offer long-term moving averages. When the moving averages of 8 and 5 periods cross, they warn us that the trend has changed significantly and it is only possible to send signals in favor of this new trend.
We will always act against the main trend, which is the daily one.
To define the trend in the daily charts, we can use the alligator or another indicator, even a moving average would suffice.
If the daily chart tells us that the trend is bullish, but the price is falling on the 4-hour chart, we will look for a long entry on the 30-minute chart in favor of the daily trend.
The point of this strategy is simple, the price is moving in sawtooth, and the alligator strategy would be to buy into the clippings of an uptrend.
What do you think of the alligator strategy?