Bill Williams’s inventions have made an outstanding contribution to modern trading. Williams is the creator of famous indicators, such as Alligator, Fractals, and Awesome Oscillator, which he introduced in his book ‘Trading Chaos.’ Many traders nowadays use Williams’s inventions and trading systems to trade in financial markets.
The article covers the following subjects:
This article deals with a popular Alligator indicator. It will help you analyze any market, identify the trend, and spot the entry points at the beginning of the trending market, giving an advantage over most traders.
What Is the Williams Alligator Indicator, Definition & History
The Forex Alligator or the Williams Alligator is a technical indicator that defines the market trend and generates entry points at the beginning of the price momentum.
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. The Alligator strategy can accurately identify the market situation.
Another benefit of the Williams technical indicator is that it generates the entry points when the momentum is just emerging. Every trader that chooses a trading platform and establishes his retail investor accounts wants to enter a trade at good prices and exit at the peak of a trending price movement. Using the Alligator, you will be able to pick up strong market moves and take profits at the end of the trend.
However, the Alligator alone is not enough to find out good entry points and it is usually combined with more complex instruments. Bill Williams himself applied Alligator together with other technical indicators he developed. He developed the Profitunity trading system based on the combination of the technical indicators created by Bill Williams. The trading system applies Fractals and Awesome Oscillator oscillators as additional filters to define entry points.
As for other indicators, not included in the Profitunity system, trades use standard oscillators, relative strength index (RSI), Moving Average Convergence Divergence (MACD) and Stochastic, as signal filters.
What is the Alligator?
The Williams Alligator analyzes stock indexes, equities, commodity and precious metal markets, Forex trading, and cryptocurrency markets. It is a technical indicator based on the moving averages with different periods.
Moving averages are the price derivatives, so if there is a price chart, and you can attach moving averages to the chart, such a market can be analyzed using the Alligator.
The best timeframes to trade with the Alligator are the daily, four-hour, and one-hour timeframes. It makes no sense to use the Alligator in shorter timeframes, as there will be many false signals due to the price noise. For day trading. The H1 will be quite suitable.
Traders employ the Williams Alligator to open both medium-term and long-term positions in the daily or weekly timeframes and the positions during the day or week in the shorter timeframes.
How does the Alligator look in the chart?
The Williams Alligator is a standard technical analysis tool that comes with most trading platforms by default. You can find the Alligator in the list of classic trend indicators of the MetaTrader terminal, as well as in the personal profile of the LiteFinance brokerage company.
That is how the technical indicator looks on the price chart in the LiteFinance personal profile.
To see the technical indicator in the chart, you need to activate it. Click on the Indicator button and select the Alligator in the list:
What is Forex Alligator? Key takeaways:
Bill Williams Alligator is a trend indicator included in most trading platforms by default.
It identifies trends.
It generates entry points at the very beginning of the price trending movement.
It indicates the end of the trend.
Alligator Indicator works for any asset in any market, such as foreign exchange, currency pair, etc.
The best timeframes to trade forex with the Alligator are D1, H4, H1.
It is composed of three smoothed moving averages with different price periods. Each of the moving average lines makes up the Alligator mouth; they are the Alligator’s lips, teeth, and jaw which are known as the balance lines.
It looks like a hunting Alligator – sleeps, eats, and rests.
A bit of history
The Alligator indicator was created by Bill Williams, an American trader, and psychologist. Williams described the Alligator indicator in his book ‘Trading Chaos’ in 1995. The Alligator is an element of the Profitunity trading system, which also includes the Accelerator Oscillator, Awesome Oscillator, Fractals, Gator Oscillator, Market Facilitation Index, and so on.
Over many years, Bill Williams studied the US stock market and watched for regularities. As a result, he came to a conclusion that classical analysis, the support and resistance levels, trend lines, candlestick reversal, continuation patterns, and other more complex instruments do not work to predict the future performance of the market. Moreover, he believed that fundamental analysis is something like crystal-ball gazing.
Research led the trader to the conclusion that the market is chaos and trading is a psychological game. Knowing the psychology and understanding the principles of behavior of market participants, the zones of accumulation and the price’s exit points from these zones are determined.
If you enter a trade before the price momentum starts and exit at the moments when the trend is being exhausted, big money is made easily and steadily, regardless of single losses, avoiding the high risk of loosing your initial deposit.
The Alligator indicator was invented to determine the state of the market. By observing the past performance of the market and accumulating knowledge about it, Williams came to the conclusion that the market’s actions are very similar to the behavior of an alligator during the hunt.
The alligator tracks its prey for a long time, observes, plans an attack. Then it makes a sharp dash, grabs the victim, and begins eating. When it is full, it hides and calms down, watching the new victim from the side.
Likewise, the market operates. The majority of trades see the trend exhaustion, the accumulation zone forms, there arises uncertainty. Next, as if out of nowhere, there appears a sharp price momentum, which triggers the stops of the traders who have been holding trades in the opposite direction, trying to trade in the correction.
The individual traders betting against the big traders face a high risk of becoming prey, losing money, and leaving the market. When the market “saturates,” it calms down, and then the same begins, and so on in a circle.
Other more complex instruments, included in the Profitunity system serve to filter signals and to detail the entry and exit points in the overbought and oversold markets. Thus, Bill Williams developed an independent trading system and started to teach traders to use it for investment business. The “Trading Chaos” is still popular and has many followers, and the Williams indicators are still popular.
How to read the indicator?
Alligator technical analysis tool is composed of three smoothed lines, which Williams used as the three balance lines and are called Alligator’s lips, teeth, and jaws. These lines imitate the process of an alligator’s hunting. The lines are moving averages with different price periods and shift to the future.
Let me explain how to trade with Bill Williams’ Alligator indicator. Imagine how an alligator wakes and hunts.
There are two stages of an alligator’s behavior. In the first stage, the predator watches the prey as if it is sleeping. In the second stage, the alligator opens its mouth and grabs the victim, eats food.
The market functions in a similar way: 70% of the time, it is trading flat or in the accumulation zone, and 30% of the time, it is trending.
First, you should define the market stage, whether it is sleeping or trending.
You enter new trades just before the Alligator starts hunting and exit all trades before the market calms down.
The hunt begins from the moment when the Alligator’s lips open, the market starts to wake up. The green line begins to construct up or down. Then the predator brings its teeth closer to the prey – the red line becomes active and begins to acquire a direction.
Then the terrible jaws open up – the blue line is lined up in the same direction with the rest. The alligator is ready to eat its prey. This is the way that the alligator indicator works. Using those balance lines, also known as moving average lines, the investor can understand when to conduct investment business at his own risk or by using professional investment advice.
Now you need to spot a moment for the price to start to trade above or below all three lines of the indicator. In this case, you open buy or sell positions.
The exit signal appears when all three lines meet at one point, the trend direction is not clear, or when the lip line crosses the one of the three lines which is the jaw. This means that the market is full and will now “sleep” in anticipation of new prey (momentum).
Bill Williams: 3 lines of the Alligator Indicator
The Alligator Forex trading indicator is composed of three moving averages, which are called the three balance lines and are the jaws, teeth, and Alligator’s lips. Each of them has a different color and is responsible for a particular stage due to the development of forex markets. Each has its weight, strength.
Green line indicates the balance line of the Lips; it is the weakest level. However, it has the fastest reaction to the price changes. This moving average is the first to react to changes in the balance of power of buyers and sellers in the market. This line is used to add up to the opened positions in the trend if there is strong momentum in the chart.
The lips line is the smoothed moving average (SMA) with the default period of 5, moved by 4 bars into the future.
Red line is the balance line of the teeth. The line is the average strength support/resistance level. It serves to enter trades when the trend is not that strong. If the instrument is within the daily ATR (average price movement), the Teeth line can be an excellent marker for entering trades in the trend.
The teeth line is the 8-period smoothed moving average that is moved five days into the future.
Blue line – the Jaw is the strongest balance line. The Jaws blue lines display the border of the medium-term trend. If the price breaks this line, it usually means that the trend is turning in the opposite direction. It is used to spot the entry points in slow trends or in conservative forex trading strategies when traders prefer to trade only in the strongest levels/zones.
The jaw is the 13-period smoothed moving average that is shifted into the future by 8 bars.
I should note that the three balance lines are the moving averages that are applied to the median value ((high+low)/2), not to the bars’ opening or closing prices.
To adapt the technical analysis indicator to different timeframes and markets, you should adjust the parameters (certain price periods and shifts) of the moving averages. You can also trade with the default parameters, but, in this case, you should trade in longer timeframes from H4 to D1.
Taken together, the balance lines form the “mouth” of a hungry alligator, ready to hunt for inexperienced traders and other market participants who trade against major players. Note that at the first stage, Alligator is in a sleeping phase, and the three smoothed moving averages are at the same point.
Next, the lip line is the first to react, as it is the fastest. Next, the teeth line reacts, and the jaw line is the last to react. It works in a similar way as an Alligator opens the mouth to capture the prey. When the mouth opens, it signals that you should enter a trade.
How the Williams Alligator Indicator Works
Market conditions are constantly moving from trend to consolidation and vice versa. This is the law of market movements. These states resemble the behavior of an alligator:
The market is in a correction. Alligator is sleeping.
When there emerges momentum, the Alligator is waking up.
When you trade with the Alligator, you should constantly watch the behavior of the three balance lines. The location of the lines indicates the market state.
The market is not trending
Alligator consists of moving averages. 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. Differently put, the market is trading flat.
The trend may start
The lip line (green) is the fastest moving average. It is the first to react to the changes in the balance of buyers and sellers in the price chart. When the lip line crosses slower MAs, we could assume that the trend is about to start. The Alligator is waking up.
Following the green line, the balance lines of the teeth and jaws, the red and blue ones, begin to acquire directions. When three MAs line up in the same direction, the trader decides whether to enter the market or not. When the next candlestick closes above or below all moving averages, it is a signal to enter a buy or sell trade. Thus, to confirm the trend and start trading you always need to check the next closing prices to take a glimpse of the future performance of the asset.
I should note that some traders use additional filters to supplement the Alligator, as it sends quite a lot of false signals in the sideways trend before the market determines the direction.
As additional filters, you could employ other indicators developed by Bill Williams: Awesome Oscillator or Fractals. I will cover how to use them in detail below.
The trend has formed with a clear direction
If the trend is up, the balance lines are arranged in the following order: The green line is on the top; next comes the red line, and the blue one is the lowest. All three lines are directed up. As the trend develops, the distance between the lines is increasing.
In a downtrend, the lines are arranged in the opposite order. The jaw line is at the top, below is the teeth line, and the lip line is the lowest. Likewise, all three lines are directed down. As the downtrend develops, the distance between the balance lines is increasing.
Alligator working principle
The Alligator Forex trading strategy suggests that you should watch the arrangement of lines in the chart. You need to learn to identify the market state – when the Alligator sleeps and when it is waking up. It is important to filter signals generated by the Williams indicator to increase the number of profitable trades.
How it is Calculated — Williams Alligator Formula
The Williams Alligator is calculated according to the following formula:
MEDIAN PRICE = (HIGH + LOW) / 2
ALLIGATORS JAW = SMMA (MEDIAN PRICE, 13, 8)
ALLIGATORS TEETH = SMMA (MEDIAN PRICE, 8, 5)
ALLIGATORS LIPS = SMMA (MEDIAN PRICE, 5, 3)
MEDIAN PRICE — median price;
HIGH — bar’s high;
LOW — bar’s low;
SMMA (MEDIAN PRICE, A, B) – smoothed moving average of the median price, where parameter A is the smoothing period, parameter B is a shift to the future;
Example: SMMA (MEDIAN PRICE, 13, 8) means that a smoothed moving average is calculated from the median price with a period of 13 and shifted forward of 8.
ALLIGATORS JAW — Jaws;
ALLIGATORS TEETH — Teeth;
ALLIGATORS LIPS — Lips.
Based on this formula, we see that the value of each indicator line can be calculated manually. However, Alligator is present in every Forex trading platform by default, so there is no need to calculate these values yourself.
What signals are provided by the Alligator?
The Alligator indicator shows the forex market state at any given time and helps investors to boost their personal finance. It shows when the market is trading flat, when there appears momentum and when this price momentum starts and ends. The latter is the most important because you should open a position as close as possible to the beginning of the trend and at the most favorable price, and then close it together with most large players.
In a trading range, the Alligator’s “mouth” is closed. With the beginning of the trend, it begins to “open up” and “eat.” Let’s take a look at what signals the Alligator generates.
I will divide the Alligator signals into three groups. Each of the groups describes a certain state of the market at the current moment.
The Alligator is sleeping
The consolidation state of the forex market is characterized by the closed mouth of the Alligator. The balance lines of the lips, teeth, and the alligator’s jaws are interwoven.
Each next to the other. In approximately the same place on the chart. The lines do not indicate a specific direction, they are located in the horizontal plane.
The sleeping state is characterized by a flat, the formation of an accumulation zone, as large traders are adding up to the trades.
The Alligator is waking up
After the traders accumulate positions, a weak price movement begins. At this moment, the mouth begins to open. The price chart crosses the Alligator line in a particular direction. Then the lines begin to line up in the trend direction, one after another: first is the green line, then — the red one, teeth and the Alligator’s lips, and then — the blue one, that represents the alligator’s jaw.
Suppose the price is above or below all the indicator balance lines and the moving averages already indicate a specific direction. In that case, they point in one direction, then the Alligator has woken up, and the hunt will begin soon. It’s time to look for an entry point.
The Alligator is eating
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. The distance between the lines starts to increase.
There is a clear trend in the chart. The strength of this trend will be proportional to the time the Alligator slept. The longer the market has been in the accumulation zone, the stronger the momentum will be.
At this moment, you cannot open positions against the trend. Traders who enter trades against the trade by mistake are doomed to failure. When Alligator is eating, nothing will stop it.
When the Alligator is eating, you should trade only in the trend direction, using strong support levels to enter the market in order to boost your personal finance: the lines of the lips, teeth, and jaws.
After the Alligator is full, the market calms down, the balance lines join after they lose direction and begin to intertwine with each other. The market needs a break, and the Alligator falls asleep at that moment.
Examples of the Williams Alligator Indicator
The above figure displays the hourly timeframes of the BRENT oil price chart. In the hourly timeframe, I prefer using the following settings of the indicator 21;13;8, but I will cover it in detail later.
Example of trading with the Alligator indicator
On the left side of the chart in the above picture, we see that the Alligator is waking up, a buy signal appears, followed by a powerful uptrend that characterizes the stage when the Alligator is eating with an open mouth.
After some time, the price tests two balance lines of the indicator: green and red, but the direction of these lines is still up, so the market grows by a few more points.
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. It’s time to take the profit.
The next stage of the Alligator trading is sleeping. At this stage, the market is trading flat. It is not recommended to conduct investment business in a sideways trend.
After sleeping, the Alligator is awakening. The mouth begins to open, and another uptrend starts. When the green balance line is above the red one and the red is above the blue, and the price is trading above all the Alligator lines, a buy signal is generated.
Open a long position at the start of an uptrend. The mouth opens, the Alligator is eating.
When the price hits the highest high in the chart, the price enters a consolidation range. The green balance line crosses the red one, and the red line crosses the blue one. The Bill Wiliams Alligator is falling asleep.
The Alligator begins to wake up when the distance between the lines begins to increase. On the right side of the chart, we see that the price is trading below the lines, and they acquire a downward direction. It is a sell signal in the Alligator trading strategy.
The downtrend does not last long, and the balance lines join and cross each other in the opposite direction. It is time to exit short trades and turn up. Here, the Alligator doesn’t rest and right away starts hunting. The last buy signal appears on the right side of the chart, immediately after the sales are closed which is the last chance for investment business.
How to Use the Alligator Indicator in Forex Trading
Alligator trading strategies come into two groups. The first type of trading with the Bill Williams’ Alligator indicator suggests you don’t use any additional trading tools. The second type of trading strategy employs additional filters to spot entry points. Employing auxiliary indicators reduces the number of false signals and gives an opportunity to enter the forex market with additional confirmation.
To begin with, let’s consider the classic use of the Alligator without using other analysis trading tools. That is, the momentum indicator is used in its original form.
Open the chart of any trading instrument in the LiteFinance Personal Profile. I will use the gold price chart as an example, but you can trade with any asset like foreign exchange, currency pair, shares, etc.
It is clear from the chart, the (XAUUSD) has been trading in a downtrend up to now. All the attempts to drive the price up have been absorbed. When the price was above the Alligator lines, the lines themselves didn’t change their direction. That is, it has been relevant to sell gold up to now.
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.
Starting from the European trading session, the Alligator begins to wake up, the lines start to line up. During the first trading hours of the European session, the price closes above the Alligator’s mouth. We notice this moment and decide to look for an entry point to buy gold.
Starting at 13:00 terminal time on January 19, the price begins to decline to test the support area formed by the Alligator lines. After the price tested the area of lines congestion (support), and after the candlestick closed right at the levels at 14:00, we decide to open a long position with a stop loss below the local low of January 18 at 1828.94. The position opening price is 1838.15.
There is no trading activity at the US session; the market participants are accumulating trading volume.
On the new trading day of January 20, the market closes at the price rise. At the European session, there was a try to reverse the trend down.
However, the price doesn’t break out the Alligator mouth lines, namely, the Jaw one. The trend continues. Just before the US session, the trade is exited with a Take Profit at 1862.0.
This Take Profit level was not chosen randomly. This is the level of the previous bar local highs which shows the past performance of the asset’s trading dimensions. The target of an uptrend is to break through the important high.
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.
The result of the trade is in the screenshot:
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.
Alligator indicator download
You can download the Alligator momentum indicator for the MetaTrader on the MetaQuotes official website.
By default, the indicator uses the following parameters: period = 21, 13, 8; shift = 13, 8, 5. MA Method: Smoothed. Apply to: Median Price (HL / 2).
Alligator and Fractals Trading Strategy
This strategy is a part of Bill Williams Profitunity trading strategy. Profundity could be a bit complicated for beginner traders, but the Alligator and Fractals trading strategy will suit traders of any level.
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.
Alligator and Fractals strategy description
This is a trend-following strategy. You spot the moments when the price momentum begins and try to enter at the momentum inception. When the market is trading flat, neither the Alligator alone nor the combination with Fractals will not work.
The strategy works on any financial instrument, be it Forex markets, commodities, or cryptocurrencies. The best timeframes to apply are H1, H4 and D1. In shorter timeframes, there will be many signals, but the quality of such signals will be bad: a lot of market noise, a lot of wrong signals. Using the W1 timeframe, you will have to expect an entry signal for weeks or even months.
Let us see the optimal settings to trade with the Alligator and Fractals indicators on the H1 timeframe, which allows us to trade intraday or hold trades for three days.
I recommend using the following settings for the Alligator indicator:
Jaws period = 21; shift = 13;
Teeth period = 13; shift = 8;
Lips period = 8; shift = 5.
You can choose the colors and the thickness of the lines as you want. The most important is that it is comfortable for you to analyze the chart, and the technical analysis indicator doesn’t prevent you from seeing bars.
The Fractals indicator looks like an arrow above the Japanese candlestick up or below the candlestick down on the chart. It indicates the high or low of the price.
An upward fractal will form after several conditions are fulfilled:
The highs of the first two candlesticks increase.
The third candlestick has a high above the previous bars.
The fourth and fifth candlesticks have successively decreasing highs.
After that, a fractal icon is formed at the highest price.
For the formation of a downward fractal, the opposite conditions should be met.
The Fractals indicator does not require setting parameters. You only need to set the display color and size of the icons.
How to enter a buy trade
To enter a buy trade, the Alligator should be waking up. The lip line should break through the teeth line upside, and the teeth line should cross the jaw line from bottom to top.
This will signal that there should be an entry point to open a position following an uptrend.
Next, you need to find the two nearest fractals: one upper, the other lower.
You wait for the moment when the hourly candlestick breaks through the last formed upward fractal and closes above the high. At this moment, you open a buy position.
Stop Loss and Take Profit for a long trade
First of all, we determine the place of placing Stop Loss. It is placed below the low of the last formed descending fractal.
We calculate the Take Profit price in such a way that the distance from the trade entry point is twice as long as the distance to the stop loss.
There are other variations of setting Take Profit: at the breakthrough of any significant high, at a distance three times greater than Stop Loss, at a strong level of a longer timeframe, etc. I usually use the method described above. A take profit of two times larger than the potential stop is not bad, and you shouldn’t be greedy.
How to enter a sell trade?
To enter a sell trade, the Alligator lines should start sloping down, and the Alligator should be waking up. The Lip line should be below the Teeth, and the Teeth should be below the Alligator’s Jaw. The price should be trading below all the Alligator lines.
Next, we look at the last two formed fractals: an upward and a downward one.
Expect when the hourly candlestick breaks through the most recent downward fractal and closes below. Open a sell position at this moment.
Stop Loss and Take Profit for a short trade
A stop loss is set above the high of the most recent upward fractal.
The Take Profit is set at the distance twice as much that of the stop loss.
Moving the trade to the breakeven
The trade is moved to the breakeven, according to this strategy, when the Jaw line (the blue one) is below the entry price for a sell trade and above the entry price for a buy trade.
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.
In this case, you should look for an entry in the opposite direction. There is no point in holding the trade even if the Stop Loss is set beyond the blue.
Closing the position manually
The strategy suggests not every trade will reach the set Take Profit, and it is normal. If the market conditions change unexpectedly, traders exit trades manually.
Let us explore such conditions:
Alligator falls asleep. This pattern of the technical analysis indicator behavior suggests that the trend has been exhausted, and it is not clear whether it will continue in the future. It is better to avoid the high risk, and when a new signal appears in the same direction, then you can start trading.
- Price breaks through the Jaws line. This indicates a possible trend change. If the price consolidates above the jaws blue lines and continues to move in a new direction, the Alligator lines will begin to rebuild and indicate new trading dimensions.
Some traders close the trade manually if the instrument reaches the important and strong level on the longer timeframe chart. Another reason to exit a trade manually if the price passes the average daily move (suitable for intraday traders). There could be other conditions. Here everything becomes individual, and you should act, according to your trading system.
Additional conditions to enter trades
The candlestick, on which the Signal Fractal was formed, should not touch the Alligator indicator lines. If the candlestick, on which the fractal was formed, touches the indicator, then such a fractal is considered invalid, and the signal is not traded.
To enter a buy trade, the price must be above all indicator lines.
To enter a sell trade, the price must be below all indicator lines.
Best Alligator indicator settings
Different Alligator indicator settings apply to trading in different timeframes. I should note that the longer is the timeframe, the more reliable are the signals generated. But in this case, there will be fewer signals. And vice versa, the shorter is the timeframe, the more there will be signals, but a false buy or sell signal will be more often to occure.
Alligator settings for H1 timeframe and shorter
Personally, I prefer to use the indicator on the H1 timeframe. This is the optimal timeframe for short-term trading with a trade holding time of 1 to 5 days. A moderate amount of market noise, combined with frequent and clear signals for currency pairs, makes it possible to focus on a few popular financial instruments and trade without psychological stress.
The best Alligator settings for the H1 timeframe:
Jaws period = 21; shift = 13;
Teeth period = 13; shift = 8;
Lips period = 8; shift = 5.
These are the Alligator indicator default parameters offered in the LiteFinance client profile.
Alligator settings for the timeframes of H4 and longer
On the timeframes of 4 hours and longer, there is less market noise; therefore, more reliable trading signals from any indicators of the forex markets appear. The drawback is that it takes more time to wait for the a buy or sell signal.
To compensate for this disadvantage, the Alligator indicator should be used with the standard parameters recommended by Bill Williams:
Jaws period = 13; shift = 8;
Teeth period = 8; shift = 5;
Lips period = 5; shift = 3.
These are the generally accepted Alligator settings. Any MetaTrader terminal offers such parameters by default.
Alligator indicator — settings for M5 timeframe
You can apply the Alligator with the standard parameters of 13;8;5. But there will be many false buy or sell signals in this case. You will need additional trading tools, for example, oscillators like Relative Strength Index, Moving Average Convergence Divergence or the Fractals indicator, to filter out signals that are not correct.
Let’s go the other way and take the certain price periods even longer than with the settings for the H1 timeframe. We shall take the following numbers from the Fibonacci sequence: 34 for the period and 21 that is shifted forward into the future.
Alligator technical indicator optimal settings for a five-minute timeframe:
Jaws period = 34; shift = 21;
Teeth period = 21; shift = 13;
Lips period = 13; shift = 8.
In this case, there is a “slow” indicator but in the “fast’ timeframe. These settings reduce the market noise and filter signals. With these settings, you will get a couple of reliable signals for day trading, which is still good for a day trader.
Summary of Alligator settings
If you want to adjust Alligator settings to different timeframes, you should perfectly understand this indicator’s work principles. It should be borne in mind that the shorter the working timeframe, the greater values should be set for the indicator formula. The longer the timeframe, the smaller the values can be set into the formula. You need to change the Alligator technical indicator parameters to filter false buy or sell signals and reduce the influence of “market noise” to avoid a high risk of entering at the wrong time the market.
Before applying the new Alligator parameters in real trading using different retail investor accounts, you need to test them on a demo account or on historical data to analyze the past performance. A manual strategy tester will suit the best.
Pros and Cons of Alligator trading
The Alligator technical indicator allows a trader to define the ongoing market trend. It generates the entry points at the momentum inception and signals the trend exhaustion.
You can think that the Alligator is a complete trading strategy, but it is not so. You need additional filters to detail the entry and exit points. For example, you can employ oscillators or other trading tools, such as Fractals or Price Action patterns, volume indicators, and so on.
Listed below, there are primary advantages and disadvantages of the Alligator, for you to decide if the Alligator trading strategy suits you or not.
It identifies different types of trends in the market
To make up a profitable trading system, you need to be able to combine the Alligator with other indicators
It indicates dynamic support and resistance levels
You need additional entry filters; otherwise, there will be many wrong signals in the sideways trend
It indicates the market state: trend, flat, the end of the flat
You need to adjust parameters for different timeframes
It allows you to enter a trade at the beginning of the momentum
It indicates the exit points
It is user-friendly, suitable for beginners
It is included in most trading platforms by default
It is clear from the above chart that the Alligator has more advantages than disadvantages. Alligator is a straightforward indicator, included in most trading platforms by default. This suggests that even a beginner can trade with the Alligator. However, for more profitable and comfortable trading, a newbie will have to master other analytical tools in order to detail entry points and filter false signals.
Bill Williams’ Alligator technical indicator identifies the trend, flat and the flat end, which is an undoubted advantage over other indicators that often lag behind and generate a signal when the price has already passed a large number of pips in the chart. It turns out that when trading with the Alligator, you take almost the entire trend movement. When you trade with most other indicators, you enter the market at the trend’s end and could face the risks of the trend reversal and closing a position by stop.
A significant flaw is that you need to adjust the Alligator technical indicator parameters for each timeframe individually. Of course, you can use default settings. However, with this approach, there will be a lot of signals in short timeframes, half of which will be false. In long timeframes, on the contrary, there will be fewer signals, and you will have to wait for entry signals for a long time.
I have collected for you comments written by real traders on the various forums where Alligator is discussed:
Summing up the pros and cons section, I want to emphasize the following: Alligator is not suitable for all traders. However, I suggest everyone should study and try to use the Alligator. At least, studying the Alligator will be useful for self-development and understanding of the working principles.
Most of the positive reviews boil down to the fact that the Alligator technical indicator is simple and its signals are clear. There is no double interpretation. It is clear when to open a buy or sell position and when to close.
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.
As with any analytical analysis tool and any trading strategy, there are many followers and many haters of this technical indicator. If there were a 100% working instrument, then there would be no market and free trade 🙂 Therefore, it is only your decision whether to use the Alligator or not when trading cfds, stocks, a currency pair etc.
Williams Alligator FAQ
For long timeframes H4 – W1, standard settings suit: Jaws, Teeth, and Alligator’s Lips: 13;8;5, shift 8;5;3.0.
For timeframes М15 – Н1 use the following settings: 21;13;8, shift 13;8;5.
For a 5-minute chart, you can use the settings: 34;21;13, with the shift of 21;13;8.
You should test any settings on the historical data before you apply them in real trading.
Alligator and fractals will perform the best on highly liquid financial instruments: foreign exchange, major currency pairs, oil, gold, stock indexes, and so on. You can safely trade EURUSD, GBPUSD, USDJPY, USDCAD, AUDUSD, NZDUSD, USDCHF with the Alligator. Some cross currency rates, for example, EURGBP, EURJPY, GBPJPY, are also traded quite well with the Williams’s indicators.
The Williams Alligator is an excellent market analysis tool suitable for both a beginner in training and an experienced professional trader. Although the indicator was created a long time ago, it still works.
Alligator performs quite well in the analysis of any market: Forex, stocks, commodity market and cryptocurrencies.
To increase the performance of trading signals, you should use additional filters such as Fractals.
You can try trading with the Alligator indicator on the demo account without registration.
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