An Alligator indicator is a popular trading strategy created by a famous market player Bill Williams. It is used to find the moments of the transition of a trend to a stable movement and, conversely, signals about its termination. The Alligator is usually used with its default settings. However, for trading on different timeframes, different alligator indicator settings are used.
The indicator got its name for some external resemblance of the chart to the legendary predator.
How Does an Alligator Work?
Later alligator indicator: the three moving indicators:
- The blue line is called the jaw. It has a period of 13 with a shift forward by 8 candles. The line shows the possible price movement in the absence of fundamental economic news.
- Red is teeth. It has a period of 8 with a shift forward by 5. The line shows the hourly trend.
- Green is lips. It has a period of 5 with a shift forward by 3. The line shows a 12-minute trend on daily timeframes.
The alligator calculation for a forex alligator strategy consists of evaluating all three described indicators. To be profitable with this type of trading, you need to closely monitor the so-called periods of “rest” and “awakening,” depending on where the lines are on the chart.
Trading Using the Alligator Indicator
The indicator shows three types of development.
- If all three lines are close, there will be no particular fluctuations in the price.
- If the green line crosses the other two lines, a new trend begins to form.
- You should already be selling or buying, depending on the situation on the chart, if the candlestick closes above or below all three lines.
It is important that for different timeframes, you need to change the characteristics of the indicator and not use one for all. This should be done to avoid false signals.
The alligator strategy has proven its right to be in the market. This is an indicator that can be studied to make a profit. However, it is important to combine this indicator with others as well as with technical analysis so that buying or selling is effective.