Alligator indicator: Teeth, Jaws and Lips: How to trade with the Alligator Indicator DTTW

The system allows you to trade by yourself or copy successful traders from all across the globe. Why should you move the order to the breakeven zone in this case? It is because the Jaw line is responsible for the trend border in the timeframe you trade. If the line is broken out, the trend is likely to change. A stop loss is set above the high of the most recent upward fractal.

It is better to avoid the high risk, and when a new signal appears in the same direction, then you can start trading. The Fractals indicator perfectly complements the Alligator. The combined application of the two Williams’s indicators provides accurate entry points, with the Fractals tool serving as an additional filter. You enter a trade at the fractal breakout when the market trend has already acquired a direction. As you know, when we trade forex, the market can be either trending or consolidating. The price moved in momentum for about 30% of the entire time; it trades in correction or accumulation for 70% of the time.

If such cross happened during an uptrend, you can buy once the green line returns above the red one. 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. You can try trading with the Alligator indicator on the demo account withoutregistration.

The Alligator’s Jaw, the “Blue” line in the diagram below, is a 13-period Smoothed Moving Average, moved into the future by 8 bars. IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority. You can also customise the parameters and change the MA colours. To remove the indicator from your chart, right click on it and select ‘delete indicator’ in the pop-up window. This exposes a significant drawback of the indicator because many awakening signals within large rangeswill fail, triggering whipsaws.

What signals are provided by the Alligator?

When the market is trading flat, neither the Alligator alone nor the combination with Fractals will not work. As we use the Alligator momentum indicator alone, without any additional filters, the stop-loss orders should be placed beyond the local lows and highs, depending on the trend. Take Profit levels are set at the breakthrough of important high and lows. Next, the price breaks through the Alligator lines and updates the local minimum. The lip balance line crosses the teeth and jaw line, signaling the end of the uptrend.

Remember that the Alligator indicator is shifted from 3 to 8 daily periods forward. The single crossing is your signal to enter a trade, after the closing candle is registered below the Green line. When the Green line flattens or crosses again, it is time to exit. Once you become accustomed to the various signals provided by the Alligator, applying a related strategy in real time follows a predictable pattern. First, the Alligator sleeps, begins to wake when the ranging period concludes, and then persuades you to hold on while it feeds.

False signals can occur, but the positive signals are consistent enough to give a forex trader an “edge”. The above diagram illustrates just such an ideal trading example. The Alligator is sleeping, as indicated in the upper left of the chart. When the first CCI Alert occurs, it is time to take aim.

If you think the alligator indicator is signalling an uptrend, you can open a ‘buy’ position . This enables you to profit from increasing forex prices. If you think the indicator is suggesting a downtrend, you can open a ‘sell’ position , which enables you to profit from falling FX prices. If either of your predictions are wrong, you’ll make a loss.

To increase the performance of trading signals, you should use additional filters such as Fractals. The trade is moved to the breakeven, according to this strategy, when the Jaw line is below the entry price for a sell trade and above the entry price for a buy trade. The strength of this trend will be proportional to the time the Alligator slept.

Bill Williams’ Alligator indicator provides a useful visual tool for trend recognition and trade entry timing, but it has limited usefulness during choppy and trendless periods. Market players can confirm buy or sell signals with a moving average convergence divergence or another trend identification indicator. The Alligator indicator uses three smoothed moving averages, set at five, eight, and 13 periods, which are all Fibonacci numbers. The initial smoothed average is calculated with a simple moving average, adding additional smoothed averages that slow down indicator turns.

It is wise to hold while the three lines are far apart. When the trend takes shape, the Alligator wakes and starts eating. The derivative oscillator is similar to a MACD histogram, except the calculation is based on the difference between an SMA and a double-smoothed RSI. The Take Profit is set at the distance twice as much that of the stop loss.

When you trade on a one-hour chart, the period ranges from one to four days. When you work in shorter timeframes, a trading signal works out during one or two trade sessions. First, analyze the stage of the Alligator cycle – if it is sleeping, waking or eating. If the Alligator is waking up, look for an entry point.

The Alligator Strategy – How to Use the Alligator in Forex Trading

We notice this moment and decide to look for an entry point to buy gold. 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. After the Alligator is full, the market calms down, the balance lines join after they lose direction and begin to intertwine with each other.

Critics argue that Alligator was developed for the stock market a long time ago. It will not work alone, and you will lose your deposit in the flat. It is based on the moving averages, i.e., it is the derivatives of the moving average. And the moving averages themselves are already a derivative of the price.

Teeth, Jaws and Lips: How to trade with the Alligator Indicator

The Alligator is as much a metaphor as it is an indicator. The three lines stretched apart and moving higher or lower denote trending periods in which long or short positions should be maintained and managed. When the Jaw, the Teeth, and the Lips are intertwined, it means the Alligator is asleep and there’s no uptrend or downtrend at the market. Bill Williams recommends staying out of the market during such periods. The longer the Alligator sleeps, the hungrier it wakes.

How to interpret Alligator indicator

Alligator’s Lips – 5-period smoothed moving average which is moved 3 bars into the future. Alligator’s Teeth – 8-period smoothed moving average which is moved 5 bars into the future. Alligator’s Jaw – 13-period smoothed moving average which is moved 8 bars into the future. It depends on the timeframe where you use the Alligator in a trading platform. If you trade in long timeframes (H4 – D1), the signal period will last from one week to one month.

Long signal

If the momentum is supported by other traders, then the mouth begins to open wider and wider. The balance lines of the lips, teeth, and jaws point in the same direction. 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. The Williams Alligator analyzes stock indexes, equities, commodity and precious metal markets, Forex trading, and cryptocurrency markets.

The red line is known as the teeth while the blue line is the jaws. The chart below shows the Williams Alligator applied in a Microsoft chart. Steps “2” and “3” represent prudent risk and money management principles that should be employed. Also take note that the Alligator is a lagging indicator that works best after a long period of sleep. It is not effective in choppy markets, but, when a strong impulse wave occurs, it will tend to keep you riding the wave a little longer than most other trend type measuring gauges.

Risking 1% of the initial deposit, we can afford to enter a trade of 0.45 lots. The ratio between profit and potential loss (Reward/Risk) was 2.59. Let me explain how to trade with Bill Williams’ Alligator indicator. The Alligator indicator was invented to determine the state of the market.