Alligator Indicator: How To Use and Read the Williams Alligator Indicator? Example and Definition

what is alligator indicator

Numbers that are in the indicator are what give you the information that you need to make better trades. So, it is obvious that you should have a clear understanding of what those numbers are and their meanings. A lot more goes inside the Alligator indicator than what meets the eye. To gain a better understanding of what the indicator does, first, you will need to understand how the indicator calculates the market movements. Taken 7 Fibonacci numbers, painted in the colors of the rainbow and highlighted when the rainbow fan is up or down.

what is alligator indicator

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. Open the chart of any trading instrument in the LiteFinance Personal Profile. I will use the gold price chart as an example, but you can trade with any asset like foreign exchange, currency pair, shares, etc.

What Is The Alligator Indicator & How To Trade With It

In terms of display, the Williams Alligator indicator overlays on your chart. It doesn’t need to create a separate window for itself and appears as an extra indicator or your main chart. Also, the indicator comes custom-built into TradingView, is forex trade profitable MT4, and MT5, three of the most popular trading platforms. Without further ado, here’s everything you need to know about the Bill Williams Alligator indicator, its trading strategies, and real examples of this indicator in charts.

The following steps illustrate how to set up the Alligator indicator in the MetaTrader 4 software. IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority. Discover the range of markets and learn how they work – with IG Academy’s online course. They show where the price had reversed in the past, which can potentially act as price reversal levels again. Bill Williams uses the behavior of an alligator to explain what is happening in the market.

The lips of the Alligator, the green line, is the fastest moving average and will be the first one a trader will want to monitor. You want to see the green line cross both of the slower moving averages. You monitor the condition of the three smoothed moving averages to determine what state the “Alligator” is in. Critics argue that Alligator was developed for the stock market a long time ago.

How do you effectively trade with the Alligator indicator?

But when the lines are far apart, the alligator is said to be awake and, therefore, it provides trading signals. The Alligator indicator can help traders to decide the movements in the forex market. This can provide traders with better buy and sell signals resulting in more profitability. The easiest way to identify the absence of a trend is when all three lines of the Alligator indicator are entwined or very close together. This is what traders also call the alligator, being dormant and awaiting a change in market state.

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It is often required to use additional filters for trading signals. Without filters, it could send many false signals and there is a high risk of causing many losses. You need to adjust settings for each trading style and timeframe individually. It is clear from the above chart that the Alligator has more advantages than disadvantages. Alligator is a straightforward indicator, included in most trading platforms by default.

Swing Trading Alerts (+Results)

On the far right, you can see this pullback failed however there was not break above the yellow line before price began to close under the 3 lines. You can determine the length of pullback needed by choosing where price has to pull back to. Here you can see obvious pullbacks that have pulled to the green and red line while the blue kept the upwards slope. When this occurs, section of the previous high and low and using your entry tactics, trade inside the range. As the green line continues in one direction, the red line which represents the teeth of the Alligator, begins to separate and move in the same direction – the teeth are opening. Further, this lag functions as a filter and helps eliminate insignificant and false signals.

For instance, the ratio of any two numbers in that sequence, apart from 1, 2, and 3, is always 1.618, or a number creepily close to that. While this indicator is good at what it does, it always has room for improvement. The best way to ensure the maximum quality results is by combining this indicator with other indicators that fulfill unique niches. We recommend that you keep things default as most of the guides online will focus on the default parameters. This article represents the opinion of the Companies operating under the FXOpen brand only. Stay on top of upcoming market-moving events with our customisable economic calendar.

Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. When you see the lines going in a certain direction, you can introduce a price pattern that’s commonly used by many traders – a pullback. To support your theory, you should have all lines pointed in a single direction.

How to use the Alligator indicator with standard tools?

When it wakes up from a long sleep, it opens its mouth (moving averages diverge) and gets ready to take a big bite of the market. The Alligator will chase the price far away and offer a decent profit to a trader. Having eaten enough, the Alligator goes back to sleep (moving averages converge), so it’s time to take profit.

  • Inverse Fisher Transform On Williams %R

    Since Williams R indicator produces negative values, I preferred to add 50 instead of subtracting 50.

  • On the rise, the price drops to the Jawline, but the indicators do not cross each other.
  • Then the Alligator woke and an uptrend commenced (indicated by the third arrow), the “eating with an open mouth” phase.
  • Always perform thorough technical and fundamental analysis before opening a position.
  • This will help get rid of false signals in the sleeping phase of the Alligator indicator.
  • All you have to do is drag and drop that indicator into your preferred chart.

In the chart below, for instance, we’re using the breakout strategy on the EURUSD 4-hour chart. We wait for the candlestick to complete a breakout of the lip, and we open an appropriate position; hence, a long buying position. Now, let’s see the different use cases to successfully utilize the alligator indicator. If the Alligator is not asleep, the market is either in an uptrend or a downtrend. You should consider whether you understand how ᏟᖴᎠs work and whether you can afford to take the high risk of losing your money.

Forex Categories

The consolidation state of the forex market is characterized by the closed mouth of the Alligator. The balance lines of the lips, teeth, and the alligator’s jaws are interwoven. It is the first to react to the changes in the balance of buyers and sellers in the price chart. When the lip line crosses slower MAs, we could assume that the trend is about to start. Moving averages, as the name implies, show the average price values over a certain period. Therefore, if MAs are in the same place on the chart and do not show any direction with their slope, then the market is not trending.

This strategy is a part of Bill Williams Profitunity trading strategy. Profundity could be a bit complicated for beginner traders, but the Alligator and Fractals trading strategy will suit traders of any level. Starting from the European trading session, the Alligator begins to wake up, the lines start to line up.

They should also wait for the price to reflect the trend change signaled by the indicator. This means that traders are always looking for means to apply various indicators. Some traders may look at a trend indicator that uses a different method to see if it confirms the signals. This is in relation to using an Alligator indicator for instance.

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