Bill Williams Alligator indicator, How to use

  • Bill Williams Alligator indicator, How to use

    The Alligator indicator is one of the standard indicators in MT4 which is often used to analyze the trends.

    This indicator was first introduced by Bill William, a famous technical expert, and trader who developed chaos theory effects and special effects in the market.

    Alligator indicator is a technical tool developed by Bill Williams. He is an expert technical trader who also creates other indicators such as an awesome oscillator, fractals, gator oscillator, and several other tools.

    Alligator is an indicator that can be used to signal a trend. Bill Williams identifies crocodile behavior as a reflection of what is happening in the market.

    A phase where when the crocodile is resting then awakens they will able to hunt prey so that it will back to sleep after eating is over. The longer the crocodile sleeps and is hungry, the stronger the market can move.

    That is, the rhythm of the enthusiasm of buyers and sellers in forex trading is similar to the predator's biological cycle.

    When sideways, traders will generally wait for the opportunity to hunt for moments to open positions.

    Alligator Indicator explained

    The indicator alligator has three main lines, which are called the jaw, teeth, and lips. The jaw is blue, the teeth are green, and the lips are red.

    The pioneer Bill William developed the Alligator indicator which is an indicator of trend following. He believes that individual securities are only 15% to 30% the market is in a sideways condition and 70% to 85% of the time presents a good opportunity.

    Bill William's thinking that individuals or institutions make profits when the trend is strong.

    If it is like an alligator, it will wake up when it feels hungry and will look for prey to eat. This means that when the market trend conditions are sideways, the trader chooses to remain silent without any action, but when the trend strengthens, he will immediately take action to catch profits quickly.

    The alligator's behavior will return to sleep after being full by eating its prey. Individual and institutional traders will also stop trading when the market is flat.

    Below the appearance Alligator indicator:

    Chart by Tradingview

    Alligator indicator formula

    The Alligator indicator is three smooth moving averages. The periods used in the settings are 3,8 and 13.

    The Alligator formula is quite complicated to calculate, but traders do not have to memorize the formula because users only need to attach the indicator to the chart and the indicator line will flow according to market trends.

    But to add insight into the alligator formula, below is the order of the formula.

    A simple moving average (SMA):

    SUM 1 =  SUM  (CLOSE, N)

    SMMA 1 = SUM 1 / N

    Subsequent values are:

    PREVSUM = SMMA (i-1) * N

    SMMA (i) = (PREVSUM-SMMA (i-1) + CLOSE (i)) / N

    Description

    SUM1 - the sum of closing prices for N periods;

    PREVSUM - smoothed sum of the previous bar;

    SMMA1 - smoothed moving average of the first bar;

    SMMA (i) - smoothed moving average of the current bar (except for the first one);

    CLOSE (i) - current closing price;

    N - the smoothing period.

    Source Investopedia

    How alligator indicator works

    As has been described, the Alligator takes analogy from a water predator named Alligator.

    The alligator indicator will criss-cross between the three lines, this indicates that the Alligator is sleeping, this condition is called sideways.

    In this condition, the market condition is in a flat condition so that there are not many traders who sell or buy, avoid this condition.

    If the condition has ended and when the Alligator indicator red lines (teeth) and green (Lips) start to intersect in one direction to the blue line (jaw), then the Alligator has awakened.

    Market conditions have begun to allow traders to earn profits.

    How does it work the same as the moving average crossing signal? If there is an upward intersection, it means that the price will uptrend, on the other hand, if the intersection is down, the price will downtrend. 

    Once the trend is taking shape, you can consider holding the position as long as the "mouth" is wide open.

    This condition is seen when the three lines move in one direction and continue to get wider. But be aware when all three lines start to narrow. That means the Alligator indicator indicates that the Alligator is getting full and wants to rest.

    Therefore, be prepared to close positions when the red and green lines start moving in the opposite direction of the previous trend.

    How to use alligator indicator forex trading

    The default parameter of the Alligator is 13,8,5. There is some trader use the 8,5,3 parameter as a comparison. Generally hat the 8,5,3 parameter is sharper than 13,8,5.

    Here are the formulas of technical indicators: Alligator.

    The Alligator's Jaw (the blue line) is the 13th period Simple Moving Average indicator in the median (High + Low) / 2 value which shows the price predictions of 8 bars in the future.

    The Alligator's Teeth (the red line) is the period 8 Simple Moving Average indicator in the median (High + Low) / 2 value which shows the price prediction of 5 bars in the future.

    The Alligator's Lips (the green line) are the period 5 Simple Moving Average indicators in the median (High + Low) / 2 value which indicates the price predictions of 2 bars in the future.

    The use of the Alligator indicator is to determine which Trend moves Up or Down. Following the explanation of consecutive Jaws, Teeth, and Lips and pointing upwards without anyone crossing the Upward Trend, and vice versa.

    In essence, the short-term trend (period 5) is in line with the medium-term trend (period 8) and is also in line with the long-term trend (period 13).

    So once again the lines of each trend must be sequential and not crossed so that it forms like an Alligator's mouth, either uptrend or downtrend.

    How to Trading With Alligator Indicator?

    The Alligator is said to sleep when all three lines collide irregularly. Under these conditions, the market is usually in a sideway condition. Avoid opening a position until you get the following signal, which is when the Alligator indicator starts to "wake up".

    Next, when the red and green lines (teeth and lips) begin to intersect in one direction towards the blue line (jaw), the Crocodile has awakened. Therefore, get ready to open a position. The principle is still the same as the moving average crossing signal; if it crosses up it means the price will go up, or it will go down if it crossing down.

    When the trend begins to form, you can consider holding the position as long as the "mouth" is wide open. The condition is visible when the three lines move in one direction and continue to increase in width.

    Be careful when the width of the mouth starts to narrow. That means the Alligator indicator indicates that the Alligator starts to satiate and wants to rest. Therefore, get ready to close the position when the red and green lines (lips and teeth) start to move in the opposite direction from the previous trend.

    Alligator and fractals trading strategy

    Let's consider fractal signals now. This is like the 5 series of middle candles having the highest maximum and lowest minimum prices.

    If the fractal appears above the Alligator then we have a signal to buy if it appears below the Alligator. We have a signal to sell. The best signal is when the lips, teeth, and jaws are interwoven and there is a high probability of movement. The Alligator is in a state of "sleeping", he is "hungry" and the price will "run away".

    How to use alligator indicator for intraday

    Intraday is a trader closing a position on the same day as the position opening. In using the Alligator for intraday trading traders need additional indicators such as an oscillator to add to the trading signal filter.

    The combination of the alligator indicator can add to the stochastic, MACD, and other indicators.

    The way to determine the new position of the Alligator is to wait for the intersection between the Alligator lip and the Alligator teeth and jaws.

    If you use the daily timeframe for the Alligator, it will often be late because it includes a lagging indicator. So you should use the Alligator for intraday is the H1 timeframe.

    Alligator scalping strategy

    Indicators are widely used for breakout trading, but this can also be used for scalping strategies.

    The method is also very easy when the Alligator line crosses each other; there is a cross between one line and another; this. After all, is a sideways condition where the movement is in the trading range.

    You only need to mark the support and resistance ranges as a reference for scalping strategy with the Alligator.

    Wait for the price to be in the top range to open sell and be in the bottom range to open Buy, it's simple and you can place a tight stop loss.

    Is this Alligator Indicator the best?

    Well, usually, there is no perfect indicator. The same is true of Bill William's Alligator indicator.

    The Alligator indicator is right for use by beginners because of the ease of understanding and getting signals to open positions. Unfortunately, the accuracy indicator becomes ambiguous for the trader.

    Because Alligator included to the lagging nature of this indicator. In other words, when prices have moved with rapid and sharp price movements, generally these indicators will be too late to respond. So you get a signal after a new trend has formed. It’s mean too late enter position.

    So the suggestion, use this indicator in major pairs with a clear and stable trend. Second, avoid trading news because, during important news releases, price movements will occur very quickly and unexpectedly.

    In conclusion, the Alligator indicator is worth trying, especially if you are just learning about trading trends.

    Advantages and disadvantages 

    Advantages of the Alligator indicator

    There are several advantages and benefits that the Alligator Forex indicator has, including:

    • The Alligator indicator is a standard indicator that already exists in MetaTrader, so it's easy to install and use

    • The Alligator indicator can stand alone or be combined with other indicators to find out potential targets

    • This indicator is useful for assisting technical analysis in trading currencies or stock indices.

    Disadvantages of the Alligator indicator

    • This indicator is a lagging indicator which is often too late to give the Alligator cross alert, trading signals come after a trend is formed.

    • Not suitable for fast trend movements because the indicator response is slow due to the nature of the lagging.

    • It requires precision and patience to wait for the Alligator's signal after its sleep phase.

    How to attach the Alligator Indicator on MT4

    Because this indicator is available by default in MT4. You just need to follow these simple instructions:

    Click Insert -> Indicators -> Bill Williams -> Alligator

    Conclusion

    The Alligator is one of the many trading indicators that you should try.

    But in practice, you should understand the trend conditions that occur so that you can provide more effective signals.

    This is because the Alligator is often late in giving a signal. After all, it is waiting for the intersection of the three indicator lines.

    If this is applied with a tight stop loss, likely, you will often run into problems as these indicators are lagging.