the best way to use the alligator indicator and I can
guarantee you've never heard of the strategy before first of all we all know
that the trends on the market don't always happen sometimes the market is
stagnant and flat in fact research shows that the financial markets and
individual securities trend just 15 to 30 percent of the time and going
sideways ranges at 70 to 85 percent of the time ranges and sideways movements
are very bad in trading in fact most trading losses comes from when the market
is on the range and not have a clear trend so what if there's an indicator that can
not only good at detecting trends but also detects when the market is on a
range because as traders we profit from trends that is why it is very important
to be able to identify those points when the market is trending that is what
the
Williams alligator is for the alligator is easy to use and
can't find trait setups based on how close together or how far apart the lines
are resembling an alligator opening and closing his mouth this indicator can be
used in combination with other analysis techniques the alligator uses three
smooth moving averages consists of three lines that are all named from parts
of an alligator's mouth first, we have the green line the lips which are a five
period simple moving average smoothed by three bars on a subsequent value then
we have the red line called the teeth which is an eighth-period moving average
smoothed by five bars on a subsequent value and a blue line called the jaw
which is a 13-period simple moving average smoothed by three bars on a the subsequent value so the main focus of the Williams alligator is the lips or
the green line which is the faster moving average out of the
other two moving averages the movement of the lips determines whether or not we
take a long position or a short position so the way we use the indicator is
actually very simple so when the lips crosses downwards through the other lines
it indicates that there may be a chance that the market is on a downtrend and
if the green line crosses upwards through the other line it indicates that
there may be a chance that the market will be uptrending but don't take
positions yet there are other important factors that we need to discuss before
confirming that it's a trend so remember I said that the Williams alligator can
also, identify ranges in the market so the way we identify the ranges is when
the lines are closer together and often cross multiple times in
the middle section without a clear direction you can make an
analogy of this as the alligator is still sleeping because there is no trend
you can see in this chart the lips did cross downwards but that doesn't
necessarily mean that it's on a downtrend yet because you can see after that
the lines are still intertwined with each other and constantly crosses without
a clear direction we can also identify if a strong trend momentum is happening
in the market is by looking if the lips crosses over through the other lines
plus the slower lines following in that direction so example in this chart the
lips crosses over upwards while creating a gap between the lines these gaps are
very important because it shows how strong a trend is the wider the gap the
stronger the trend will be usually the direction of the lines also determine
how strong the trend is if the lines are spread apart and is heading
significantly upwards
it means the price is on a strong uptrend and when the lines
are facing in a significant downwards direction it means it's on a strong
downtrend the alligator can also indicate if a trend is weakening as a trend
comes to an end the lines will come closer together indicating that you should
be prepared to close your position so the classic way of using the indicator is
to wait for the green line to cross over the other lines when the green line
crosses below you take a short position and when the green line crosses above
you take a long position well that's actually the worst way you can think of
using the alligator strategy because the alligator is inherently a lagging
indicator so if you waited for the lines to cross over you would have entered
in a trade very late you will miss huge trends like this so after
i tested different indicators over the years i also found
the best way that you can utilize the alligator strategy so here's how the
strategy goes so first what you need to look at is the lips so the lips can be
either above below or inside the other two lines so if the lips are above the
lines you wait for a candle to close below the middle line the teeth so if the
green line is above the other two lines and a candle closes below the teeth you
take a short position it's the same with the long position if the green line is
below the other two lines and a candle closes above the teeth you take a long
position so if
we used this method instead of the traditional method we
actually caught the trend early if we used the traditional way of waiting for
the green line to cross over the other lines you would have missed the trend
here because it's a very late indicator so that was for my entry signal and our
exit signal is actually very simple as well so you close your trade when a
candle hits the green line the lips so let me give you an example here so here
as you can see in this chart the green line is above the other two lines and
the candle closes below the purple middle line which means is a short signal so
you need to take a short position but unfortunately, the price reverses instead
of continuing but luckily for us because of our exit
the signal we would have exited the trade here because our stop
loss is at the green candle same for our take profit as well in this chart you
can see the lips are above the two lines and the price drops to below the teeth
so you take a short position here notice that the take profit is so effective
because it gives out early signals so we don't lose most of our profits another way you can utilize the Williams alligator is by combining it with another indicator
I found it best to work with the 200 ema because it shows the overall trend on the
market so the way you trade this indicator combination is by only
taking long positions if the price is above the 200 ema and only taking short
positions if the price is below the ema
so for example you
can see here that the price is below the ema line and because it's below it
means we're only taking signals that display a short position so signals that
display a long position would be ignored because remember the overall trend is
bearish so here we see the lips are above the other lines and the price closes
below the teeth, so you take a short position here and our exit signal would be
when the price hits the green line so you'd close your position here for a good
profit so to summarize the article do
not use the alligator for the crossover strategy if you want to make money
because it's a very late signal instead use the method that I just showed you
so I just gave you a potential winning indicator that you can implement right
now.