A Trader’s Guide to Using Fractals

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This happens as Alligator indicators tend to move in a range seldom making any breakouts. However, the appearance of this ranging markets suggests that price is preparing for some kind of a trend that will be established. If you’re still looking for a trusted source to get your price charts, TradingView is the solution! Most of the charts you can see on the website come from there.

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It is a simple tool that can be used to measure the direction and momentum of a market. The alligator indicator is composed of three moving averages, which are lagging indicators, so it is best used in conjunction with other technical indicators. Here are some of the most common and effective Wiliams Alligator trading strategies. Fractals are best used in conjunction with other indicators or forms of analysis. A common confirmation indicator used with fractals is the Alligator. On the chart below is a long-term uptrend with the price staying predominantly above the alligator’s teeth .

The direction of the trend

The alligator indicator is typically used on longer timeframes, such as the 4-hour or daily chart. When all three smoothed moving averages are entwined and move horizontally, the market moves sideways, and the indicator reflects the absence of a trend . In such periods, traders can use the alligator to confirm the market consolidation and use range-bound strategies. It is composed of three smoothed moving averages with different price periods. Each of the moving average lines makes up the Alligator mouth; they are the Alligator’s lips, teeth, and jaw which are known as the balance lines.

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Second, the start of a new trend, and thirdly, the direction of the trend. The Alligator indicator can be added to your charts from the indicator list in your trading software. Place a stop-loss order at 20 “pips” above your entry point.

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The Williams Alligator Indicator is a technical analysis tool that is used to identify and gauge the strength of a trend. It provides signals when a new trend is in motion and also tells you when there is no trend. Before making an investment decision, you should rely on your own assessment of the person making the trading decisions and the terms of all the legal documentation. As a trend determinant, the Alligator indicator can be included in a strategy with any entry method. For example, you can open using a fast line, and take profit on two other slow ones.

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This would help us filter out the false signals in the sleeping phase of the Alligator technical indicator, and might also improve the timing of the trading signals. This means that professional traders are always looking for ways to use multiple indicators together to try and shore up the weak spots. When it comes to the Alligator indicator, for example, some traders might look at a trend indicator that uses a different methodology to see if it confirms the signals. If the indicator lags too much at the start of the trend, and the fall or rise is steep, we could potentially miss the entire move. An example of this can be seen with the third vertical red line on the chart above. The price rises quickly and, by the time the green line has crossed above the other two, we have missed most of the move and it is not long before the lines become intertwined again.

FXSSI.ProfitRatio

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. The above figure displays the hourly timeframes of the BRENT oil price chart. In the hourly timeframe, I prefer using the following settings of the indicator 21;13;8, but I will cover it in detail later. Next, the lip line is the first to react, as it is the fastest.

When you use the Alligator, check several timeframes of the chart. The theory says traders should use 2-3 signals of different technical analysis tools, including indicators, candlesticks, and chart patterns, before entering and exiting the trade. You should not trade with the Alligator when the market is trading flat in a wide trading range. You trade in short timeframes, use the technical indicator with care, applying additional filters , and selecting parameters for each line.

How does the Alligator indicator store its data points?

You don’t need to calculate it manually – the indicator is often included in trading terminals. Taken 7 Fibonacci numbers, painted in the colors of the rainbow and highlighted when the rainbow fan is up or down. A ranging market is one in which the price swings up and down without making a significant displacement to the upside or downside — the market simply moves sideways. Bill Williams uses the behavior of an alligator to explain what is happening in the market. Alligator indicator is a trend-following indicator that was first described by Bill Williams in his book called Trading Chaos. The Dow Theory states that the market is trending upward if one of its averages advances and is accompanied by a similar advance in the other average.

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In this comprehensive guide, we will explain what it is, how to calculate the alligator indicator and interpret it for managing your trades efficiently. In an uptrend, look for trade setups where the indicator and a support level meet, but in a downtrend, look for setups where the indicator lines and a resistance level meet. In some situations, the price can pull back much more deeply to the extent that it goes beyond all the moving average lines, only to crossover later and continue in the trend direction. You should keep one thing at the back of your mind though — being a moving average based indicator, the Alligator does significantly lag the price. Moreover, the moving averages are shifted by 3, 5, and 8 periods into the futures.

Trading software can be expensive, but PrimeXBT features built-in charting tools right within the trading dashboard, offering incredible value for traders. The Williams Alligator is a trend-following indicator and can signal the absence of a trend, the formation of a new trend, and the direction of the trend. The alligator is said to be “sleeping” when the lines are tight within a narrow trading range. But once the lines begin to diverge, the alligator is said to be awakening and a new trend forming, and then feasting as it follows the price action as it trends in a new direction.

They let you freely chart almost any asset with all indicators you could think about. Traders should try to look at a mouth opening during price rise or decline. They slowly close once again when volatility dwindles, showing a potential trend change ahead due to the current trend weakening. The indicator provides signals when the three lines – Jaw, Teeth, and Lips meet and separate.

  • Every forex trader constantly searches for the answer for this question….
  • 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.
  • By using a trailing take-profit, they could exit the market when the %K line of the stochastic oscillator breaks above its %D line in an oversold area .
  • Just as an alligator alternates between sleeping and hunting for food, the market also alternates between a ranging period and a trending condition.
  • Williams also created a “Gator” histogram indicator to assist with visual interpretation.

The main drawback is Williams’ decision to use moving averages, which are the most lagging technical tool. But when you operate more or less stable markets, such as gold or currency pairs, such a tool is justified. Finally, remember that when signals are confirmed by oscillators on higher time frames from H1 and above, the Alligator indicator allows you to confidently predict the trend in many cases.

As it sleeps, it gets hungrier by the minute, waiting for a breakout from its slumber when it will eat. From those states, a trader can determine if they will use a range trading strategy, a trend trading strategy, or wait for a breakout strategy to be used. The Alligator indicator was part of the Bill Williams trading system who suggested markets trend only 15-30% of the time.

An example Alligator trading system

Alligator’s Jaw – 13-period smoothed moving average which is moved 8 bars into the future. The rules look simple and work in many cases but not all. In the chart below, the green line broke below other moving averages, which was supposed to become a signal of a downtrend . If yes, then you will enjoy this comprehensive guide to one of the most widely used technical trading tools – the moving average convergence divergence . It is a 13-period smoothed moving average, displaced 8 periods to the right. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.

He is better known, however, for the many technical indicators that he developed over time to put basic functionality to his proffered theories. One of his favourites was the Alligator Indicator, introduced in 1995, which conjured up the notion of open jaws and feeding time as a way to optimize market entry positions. Gaining an edge in the market is often said to be the proven way to be successful in the forex market, and technical indicators are the tools of the trade. Alligator technical analysis tool is composed of three smoothed lines, which Williams used as the three balance lines and are called Alligator’s lips, teeth, and jaws. These lines imitate the process of an alligator’s hunting. The lines are moving averages with different price periods and shift to the future.

moving average lines

The main negative is that https://forex-world.net/ signals are somewhat to considerably later than other indicators, as are exits… While a late entry helps reduce false signals it also cuts into potential profits… I wanted a crossover of 3 simple moving averages, each one being the 5 sma with 3 displacement, the 8 sma with 5 displacement, and the 13 sma with 8 displacement. The up arrow would basically come when the 5 sma cross over both the 8 and 13 sma.

The indicator’s creator, Bill Williams was an early pioneer in financial market psychology and developed some of the most widely used technical indicators today. The Williams Alligator technical analysis indicator can be used to discover the absence of a trend, trends that are beginning to form, and when markets have begun to trend. Traders can utilize this information to make decisions on when to enter or exit the market. The market would allow a trader to take profit at three different points. First, a trader could place a support level at the nearest lows . However, as the trend was solid, they would miss an opportunity to gain more.

It makes no sense to use the Alligator in shorter timeframes, as there will be many false signals due to the price noise. It will help you analyze any market, identify the trend, and spot the entry points at the beginning of the trending market, giving an advantage over most traders. To avoid the miss of the move, you would want to enter the trade when the candle crosses and closes above or below the whole gator instead. At the same time, you would need to make sure your MACD is following the trend of the candle. As you can see, the MACD is converging towards the down side, which means it’s a strong signal and you can buy. Overall, the indicator is easy to understand as illustrated in the above article.

Moreover, he believed that fundamental analysis is something like crystal-ball gazing. 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.

With thousands of topics, tens of thousands of posts, our community has created an incredibly deep knowledge base for stock traders. No one can ever exhaust every resource provided on our site. Hello, I was wondering if someone could help me right the script for William’s Alligator Crossover? Was just looking for a simple crossover that’s shown with up/down arrows rather than having to follow the lines. It did for the Simpler trading moderator who defines a divergent bar the way it is defined in the header of the tradingview port version on post #17. I would like a version that matches what they are doing at Simpler ideally.


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