Williams Fractal or fractals is a technical analysis indicator introduced by the famous trader Bill… In the example above, the “Blue” line is the Alligator’s jaw, the “Red”, his teeth, and the “Green”, his lips. The “CCI” indicator, or “Aqua” line, has been added to assist in reading the signals generated. One must remember that the Alligator, since it consists of moving average crossovers and is shifted ahead, will lag more than the CCI. The CCI will send the first alert, followed by the Alligator crossover and a closing candle above or below the three moving averages (See the various annotations in the diagram). It is clear from the above chart that the Alligator has more advantages than disadvantages.
The confirmations from the CCI, in these examples, occur in the current time period. In summary, the Alligator indicator does help the trader stay in the position for a longer period. Williams also developed a “Gator” histogram indicator to help visually with its interpretation and provide another means of validation.
What Williams Alligator Stands For
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. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. Bill Williams discussed the Fractals indicator in his book ‘Trading Chaos’. The logic behind Fractals is that price action is inherently repetitive, and the indicator can help traders decipher the price patterns in play.
If the line is broken out, the trend is likely to change. This will signal that there should be an entry point to open a position following an uptrend. The sleeping state is characterized by a flat, the formation of an accumulation zone, as large traders are adding up to the trades. In the first stage, the predator watches the prey as if it is sleeping.
Calculation of the Alligator Indicator
The following trading system is for educational purposes only. Technical analysis takes previous pricing behaviour and attempts to forecast future prices, but, as history has shown, past results are no guarantee of future performance. Over time with practice, you may also develop more helpful hints to enhance these alerts.
- Fractals help to obtain a more accurate entry signal.To enter a trade based on the Alligator and Fractals, you need to wait until the Alligator wakes up.
- It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.
- The indicator also plots the deviation of the cumulative trading volume from the first SMA value, which is referred to as the “Cumulative Volume Deviation”.
- Similarly, you should place a sell order after two consecutive red bars are printed below the zero line.
- The Alligator indicator was invented to determine the state of the market.
Overall, the Williams Alligator indicator is one of the leading indicators all around the world. It became popular because of its accuracy and simplicity. Wait for the fastest line (green line) to cross the other lines upside down. Remember that other indicators may give a confirmation too. We’ll talk more about it in the “How to Combine the Alligator Indicator” section.
How is the Alligator Indicator calculated?
You calculate this by subtracting the previous SMA from today’s price. The Alligator indicator is one of the several indicators that were developed by Bill Williams. Other indicators he has created are accelerator oscillator, fractals, gator oscillator, and the market facilitation index. One of the most important parts of trading is to find the perfect entry.
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. You wait for the moment when the hourly candlestick breaks through the last formed upward fractal and closes above the high. 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. 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.
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Expect when the hourly candlestick breaks through the most recent downward fractal and closes below. 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. 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. It is clear from the chart, the (XAUUSD) has been trading in a downtrend up to now.
Having eaten enough, the Alligator goes back to sleep (moving averages converge), so it’s time to take profit. The above diagram illustrates just such an ideal trading example. The Alligator is sleeping, as indicated in the upper left of the chart.