We have Bears, Bulls… so why not an Alligator. The Bulls are buying, the Bears are selling and the Alligator eats them all… metaphorically speaking, of course. I know, you might be thinking that I lost it with all the metaphors and animals but fortunately that is not the case I hope at least and instead, I am talking about an indicator developed by Bill Williams.
The Alligator is available on the popular Meta Trader 4 platform and is composed of three moving averages which move together, indicating a ranging or trending market by contracting or expanding. These three moving averages are named Jaw the default period is 13 and has a blue color , Teeth default period is 8 and has a red color and Lips default period is 5, with a green color.
But when the lines are starting to spread apart, the Alligator is waking up, opens its mouth and starts to eat… bulls and bears. As you can see from the picture above, when the mouth of the alligator is closed moving averages are close together , price is moving mostly sideways and no significant advances are being made by either buyers or sellers. Some traders enter the market as soon as the lines are in the right order: However, I consider that type of entry to be too risky and would rather wait for a retracement once the mouth of the Alligator is open.
The indicator can also be used on a higher time frame to see if a trend is in place and then take a trade on a lower time frame when both alligators agree. The thing is that the Alligator can be used in many different ways and I consider it a versatile and adaptive indicator.
The main weakness of the Alligator comes from the fact that it uses Moving Averages which are known to lag behind price. This means that price moves first and afterwards the moving averages follow it. Anyway, this is a downside that must be taken into consideration. The settings can be changed to fit your needs bigger numbers will make it move slower and smaller numbers will make it more reactive to price movement and it gives a heads up even before it crosses by starting to turn.
Of course, false signals are generated but it is not meant to be used on its own. Even with that modification, it cannot be used on its own, but then again, no single indicator will bring you amazing results. I believe the profitability of this tool largely depends on the ability of the trader to find a complementary filter for entries. Binary Options That Suck. Please be noted that all information provided by Binary Options that Suck are based on our experience and do not mean to offend or accuse any broker with illegal matters.
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