What are you waiting for? First, one needs to look for a reversal pattern.
Classic Alligator Strategy or How Not to Miss the Trend
The Alligator lagged, but confirmed the signal after a Candle closed beneath the three-line set. The Alligator indicator helps the trader stay in the position for a longer period and works best the longer the period of sleep. In the above example, you would stay in the trade until a Candle closed above the middle Red line.
The next article in this series on the Alligator indicator will discuss how this indicator is used in forex trading and how to read the various graphical signals that are generated.
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If bears push stronger, they might reach the teeth. Jaws represent the final support. Trading is fun if a logical approach governs it. Decisions to buy or sell should come at support or resistance. For this reason, the Alligator indicator formula is a great tool for traders. In fact, they go hand in hand.
First, one needs to look for a reversal pattern. This can be a double top or bottom, a head and shoulders pattern or a triangle. Or, it can be one of the Japanese candlestick techniques. The Japanese were masters in spotting reversals. As such, most of their techniques deal with trend reversal approaches. Use the Alligator indicator Forex platforms provide as confirmation.
What is the confirmation then? This is very simple: The result is one of the best approaches of how to use the Alligator indicator in Forex. Especially relevant is this system when used with a Japanese candlestick pattern technique.
Moreover, a morning star is perhaps the most powerful bullish reversal pattern ever! Confirmation protects a trading account. The Alligator Forex indicator is the perfect tool for that. Probably as important as the reversal pattern is its confirmation.
Without it, traders end up going long, in this case, only to find out that the market comes for their stop. Another great Alligator Forex trading system consists of interpreting the crosses.
That means, the crosses between the three lines that make the indicator. How about spotting the fake ones? A typical approach is to use the faster average the green line for spotting fake crosses.
Therefore, eyes on the green and red lines, please! When the green line crosses the red one and then turns again without reaching the blue line, a fake move just forms. Hence, in a bullish trend, go long on such a cross.
Or, in a bearish trend , go short when the perfect order gets back in place. Keep things simple and logical and profits will come to you.
One example of a bearish cross in the chart above shows plenty of further downside potential. The fake cross was nothing but an opportunity to use what the Alligator Forex platforms offer. And there are more of them.
A similar fake cross is possible between the bigger averages: In fact, such a cross is more powerful. It is only normal, as the two lines consider more periods before plotting an actual value.
The time frame matters here too. Not for the actual cross, but for setting the right take-profit level. When a signal as described here appears, consider the time frame before setting the take-profit level.
Do that if the signal comes from the daily chart, for example. This way, you adjust your expectations with the time frame used. It calls for two big moving averages crossing. When the fast one moves above the slow one, a golden cross forms. When a death cross appears, the opposite is true. Bears are in control. This Alligator indicator trading system offers a similar interpretation.
The secret is to use the bigger averages in the same way. Therefore, use the red and blue lines as the faster and slower averages. Just like in the case of a golden or death cross.
A cross like this shows you the type of the market: Of course, in a bullish market, we want to buy. In a bearish market, shorting a Forex pair works best. Furthermore, use the green line of the Alligator indicator as a confirmation. If not, think twice. The opposite is true when a death cross forms.
One bearish and one bullish. Both are great signals to take with the Forex Alligator indicator. Again, simple things work best in technical analysis. Just like a displaced moving average shifts on the right side of a chart, the Alligator indicator does that too.
This is a powerful tool in the hands of Forex traders. Stop for a minute and think of how this indicator functions. The lips, teeth and jaws appear on a chart on the right side of the actual price. However, this is obvious only if you look at the current price. The currency pair is irrelevant. Before backtesting a strategy, take a look at the current price.
That is the support level eight days from now! The same with the other two lines: This is very important as traders forget this small detail. Depending on the line that gives the signal, it is three, five or eight periods earlier. Such a small detail may or may not change the entry. However, it brings a whole new perspective to trading with any Alligator indicator strategy.
If your entry place considers the Alligator, you must shift it earlier with the corresponding value. The same thing happens with displaced moving averages. Now you have the wonderful opportunity to see the Alligator indicator in action. Below you will find a video example of the Forex Alligator in action. Bottom line, the trade generated pure profit of 1. This is how powerful the Alligator indicator can be. Confirming trending moves with the Alligator could put you in a trend that might exceed your expectations.
The Alligator indicator shows a trending environment. This is the main characteristic. However, one can use moving averages instead and have the same result. A displaced moving average even has the shifting attributes incorporated.
Still, the Alligator indicator formula is unique in every way. It has multiple uses, not only one. And, it has one great advantage: This means traders cannot go wrong if they respect the Alligator Forex trading system. Both trend-following strategies and reversal ones perform better when the Alligator indicator validates an entry. Furthermore, the indicator tells much about the strength of a support or resistance level.
Again, the bigger the distance between the three lines, the stronger the dynamic support or resistance level is. This is not the only indicator Bill Williams is famous for. There are plenty more. However, it has a big advantage: When an indicator repaints, its values change together with future prices. For example, the Fractals indicator disappears from the screen when price invalidates it. The few trading strategies listed here are meant to show the flexibility of the Alligator indicator formula.
One can edit it or keep it as is, the outcome is the same: To sum up, this article shows how to use the Alligator indicator in the best possible ways. Probably the most powerful tool ever developed by Bill Williams, the Alligator indicator offers great value. During his bachelor and master programs, Damyan has been working in the area of financial markets as a Market Analyst and Forex Writer.