Bottomline You may combine Alligator indicator with a momentum-based indicator like CCI to enhance your trading experience and to get better trading signals.
Say when the alligator awakes and you found that CCI has already entered the overbought area i. Like all the moving averages, the alligator is a lagging indicator. Such a lag in getting a trade signal leads to a partial loss of profit. Posted in: Markets trend and market range and the 3 lines of the Alligator indicator, known as the jaws teeth and lips, is designed to alert traders to the presence of either of those market states From those states, a trader can determine if they will use a range trading strategya trend trading strategy, or wait for a breakout strategy to be used.
Three smoothed moving averages are used however they are displaced moving averages. This simply means that the reading is adjusted X bars into the future which better forecasts the future trend direction. The Alligator indicator settings are: Since the market evolves from trend to range, we can think of the market much like an Alligator: There is no trend in the market When the 3 lines are intertwined, we do not have a trend. Forextraders Brought to you by: Bill Williams introduced the Alligator indicator in The Alligator is as much a metaphor as it is an indicator. At the far right of the chart, the Alligator is opening its mouth again, or awakening, signaling a downtrend.
The Bottom Line 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 MACD or another trend identification indicator. For more, see: A Primer. One must remember that the Alligator, since it consists of moving average crossovers and is shifted ahead, will lag more than the CCI.
Alligator Indicator Standard Interpretation
The Alligtor will send the first alert, followed by the Alligator crossover and a closing candle above or below the three moving averages See annotations. When entwined, the Alligator is said to be sleeping. 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 inducator or resistance. For this reason, the Alligator indicator formula is a great tool for traders. Slligator 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.
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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 Hiw 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. Look for Fake Crosses 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?
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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.
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Or, in a bearish trendgo 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.