How to use the Williams alligator indicator? One of the indicators found by Bill Williams is the Alligator indicator. If you use both Metatrader 4 and 5, you will easily find the Alligator indicator. This is the default Metatrader indicator.
Bill Williams himself is a well-known American trader who introduced books on market psychology, technical analysis, and chaos theory in the forex and commodity and stock markets.
According to Bill Williams, the financial market and trading can never be fully known by anyone. He looks more at the behavioral side of trading than emphasizes the fundamentals, this is strengthened because he has a degree in psychology and engineering.
Although there are six indicators created by Bill Williams, this article will write a special about the Alligator indicator.
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Indicator William alligator overview
Alligator indicator, this indicator implicitly takes the psychology of an alligator. Yes, because you know that Bill Williams places more emphasis on market behavior than on fundamental factors.
Look at how the alligator behaves, it will sleep when it is full, but it will ambush its prey when it starts to get hungry.
That is more or less the philosophy of market behavior, a sideways market is described as an alligator sleeping, while a trending market is described as an alligator who is hungry and it’s time to eat.
The market trend that occurs describes how active market participants are to get opportunities. In theory, the longer the sideways period lasts, the stronger will the traders’ desire to get the best price. That’s when the alligator gives its trading signal.
Alligator indicator formula
The Alligator indicator uses the moving average with various parameters. The average price required for the calculation is defined as:
PriceMedian = (PriceHigh+PriceLow)/2.
The calculation starts with a simple moving average value. And is then using calculation formula:
(SMMAi) = (SUM(1)-(SMMAi-1)+PriceMedian(i))/N,
- SMMA (i) – current price (without the first price).
- SUM (1) – a sum of the PriceMedian in the period N (since the previous bar).
- (SMMAi-1) – the current price value of the previous price.
- PriceMedian (i) – the average price of the current bar.
Alligator indicator look like
Williams alligator indicator has three lines that reflect market behavior and provide its signals. The three lines are Jaws, Teeth, and lips.
- Jaws: it is the Alligator’s blue MA using parameters set to period 13 and period 8 onwards.
- Teeth: it is the Alligator’s red MA with parameters set for period 8 and period 5 onwards.
- Lips: this is the green MA of the Alligator and is set to parameter 5 and moved to the next parameter for 3 periods onwards.
Advantage Williams alligator indicator
Williams alligator indicator has several advantages among them:
- The Alligator indicator is a standard indicator that comes with MetaTrader, so installation and use are quite easy.
- The Alligator indicator can stand alone or use a combination with other indicators to find out potential targets.
- This indicator is useful for helping technical analysis in trading currencies or stock indices.
Williams alligator settings
Notice that you will notice something different from the three alligator lines compared to the moving average indicator.
If the moving average line has a line endpoint on the last candle. In contrast to the Williams alligator line whose endpoint is further forward than the last candle.
The lips line from the alligator moved 3 periods ahead, this has the shortest of the three alligator lines.
The alligator teeth line moved 5 periods ahead, and the Jaws alligator line moved 8 periods ahead and is the longest line of the three alligator lines. Why the alligator line moved over the next few periods is to predict future price movements.
Williams alligator settings by default use period 13 on jaws, 8 on teeth, and 5 on lips. However, if you want to change the settings, it can be done via the property box of this indicator.
The type of MA selected also affects the shape of the three alligator lines. For example, if you choose a simple moving average, the three lines will be farther away than choosing a smooth moving average. Meanwhile, if you choose the exponential moving average, it will give a faster signal.
Setting the indicator period and the type of MA used depends on the trader’s needs. But recommendation for traders to use the standard setting, because it is the setting of Bill Williams who was the inventor of this indicator.
How to read Williams alligator
How to read Williams Alligator is very easy. Which needs attention, when the alligator is sleeping, the three lines of the alligator, Jaws, Teeth, and lips are intertwined. This condition means that the market is in a sideways or consolidation phase.
Trading rules use the Williams alligator in that condition the trader must hold back from opening new positions. These conditions tend to be less favorable.
The Alligator will not sleep forever, when it starts to get hungry, it will rise to the surface and look for prey.
Market conditions are not always sideways, when this phase ends, the three lines will separate and cross each other. The lips line will start crossing with the Teeth line then cross with the Jaws line, followed by the Teeth line which will cross with the Jaws line.
This condition is an alligator signal, depending on the direction of the line-up or down, if up is a buy signal while down is a sell signal.
Williams alligator fractal
Visually, Fractals are just little arrows pointing up and down. In short, an Up-fractal is occurring when a series of five consecutive time periods concludes and forms the highest high in the middle with two low highs on either side of the middle bar.
Likewise, Fractal Down occurs when a series of five consecutive time periods conclude and forms the lowest low in the middle with two higher lows on either side of the center bar.
Below is an example of fractal bullish and fractal bearish.
As you can see from the image above, a fractal is like a mini reversal. This pattern highlights a significant potential high or low.
Don’t let the up and down designations confuse you – some label these patterns as bearish or bullish, but the truth is that they are not inherently bearish or bullish. Its significance is contextual. That is, it only becomes bullish or bearish if the market behaves in a certain way.
How to trade fractal alligator?
Take a look at the example image below.
According to the Alligator Trading System, an up or down Fractal appear, it does not mean that this is a valid signal.
You have to interpret the Fractal concerning the Alligator indicator and pay attention to the Alligator, which is the red line in the middle.
If the Fractal is bullish above the Alligator, it is valid. Conversely, if the Fractal is bearish under the Teeth line, then you can consider it valid.
However, keep in mind that the Ascending Fractal formed under the Alligator is invalid and vice versa.
So how to trade fractal alligator?
Trading Fractals with the Alligator indicator is a rather simple process.
Once you find a Fractal that is above or below the Alligator. So wait for the Alligator to start opening its Jaws, that is when the three moving averages begin to expand.
If the Alligator indicator indicates an uptrend, simply place a Stop Buy order one tick above the Upper Fractal in the direction of the trend. Likewise, if the Alligator indicator signals a decline, place a Stop Sell order one tick below the Lower Fractal.
Simply put, trading with the fractal alligator uses a breakout trading strategy. The fractal level indicates support and resistance at the nearest price.
But the fact is that any market represents only a subjective psychological assessment of any given asset. Bill Williams has developed a trading system based on Chaos Theory and Fractal to visually represent the overall psychological orientation of almost any market.
Williams alligator signals
Even though the William Alligator can stand alone, some traders try to combine it with other indicators such as MACD to get a better signal filter.
Because the Williams alligator also has a weakness when the trend is not a long-term trend. While the alligator gives a signal after the trend is formed. This is a lagging indicator.
By adding MACD traders expect to avoid trading on false breakouts which is the alligator’s weakness.
Williams alligator strategy
Williams alligator strategy should provide a portion of risk management, and set the size of the position according to the total capital in the trading account.
Anticipating using stop losses or maybe cut losses is still an easy way to manage trading risk. Basically, Williams Alligator is trend following, it will work well in strong trend conditions.
Williams Alligator indicator is a trading tool for traders. According to Bill Williams, market conditions are sideways or moving in a range between 70% -85%. Meanwhile, the trend conditions only range from 15% – 30%.
This means that to get opportunities in trend market conditions to occur less frequently than the sideways market. Although it is possible to get profit on the sideways, the risk is higher for traders to impose on the sideways market.
Williams alligator Chartink
Williams alligator indicator is useful in various financial markets, forex, crypto as well as stocks and commodities. You don’t have to download it because it’s already available by default in Metatrader.
However, for stock traders, you can try using the Williams alligator screener. Which this tool can search and find an asset that has a breakout. It’s called the Williams Alligator Chartink.
Using the Williams alligator Chartink tool, developed by Chartink, makes it easy for traders or investors to find stocks that are on a breakout.
Before running a run scan, you must add a filter that will provide information related to the stock it is looking for.
Williams Alligator indicator is a toolbox that will add to your collection of trading combat tools. Using the Williams alligator indicator requires a high level of patience because trend conditions as a result of market psychology only occur with a portion of around 15% -30% in a week.
Therefore, practicing discipline is a must if you want to become a professional trader.
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