Trading Indicator Toolbox – Alligator Indicator

The last ten articles have been entitled Analysis Toolbox and we discussed the various market cycles including trends and continuations. This next part of the The Trader’s Indicator Series focuses on the Indicator Toolbox, as we will discuss various indicators that are found on most trading platforms. We will discuss the indicator in the context of the chosen market, and if it resonates with you, please continue to do your own analysis with it. Trading successfully is all about feeling comfortable with a methodology and using that system repeatedly even when boredom sets in. I will be discussing indicators in alphabetical order that can be found on the MotiveWave platform and this week its the turn of the Alligator Indicator. (for a free 2-week trial CLICK HERE)

Alligator Indicator

Created by Bill Williams. The Alligator is a combination of balance lines (moving averages) that use fractal geometry and non-linear dynamics. It consists of 3 lines: Jaw, Teeth and Lips. Typically, a smoothed moving average (SMMA) is used with periods/ shifts of (13/8, 8/5, 5/3) respectively for the lines.

Alligator indicator

 

SETTINGS

On the MotiveWave platform, the input choices are Open, High, Low, Close, Midpoint, Typical Price and Weighted Price. The method choices include EMA (Exponential Moving Average), SMMA (Smoothed Moving Average), MEMA (Modified Exponential Moving Average), WMA (Weighted Moving Average), KAMA (Kaufman Adaptive Moving Average), DEMA (Double Exponential Moving Average), TEMA (Triple Exponential Moving Average), TMA (Triangular Moving Average) and VWMA (Volume-Weighted Moving Average). The Alligator, as defined by Bill Williams (one of my mentors in the late 90’s!), uses the blue 13 SMMA for the jaw period with a shift of 8 periods; the red 8 SMMA for the teeth period with a shift of 5 periods; and the green 5 SMMA for the lips period with a shift of 3 periods. Notice all the moving averages are from the Fibonacci sequence

The Alligator Indicator is a trend following indicator that produces trades during trend moves (which Williams found to occur about 30% of the time) and sits out during sideways markets (occurring 70% of the time). Williams steered away from sideways markets, believing that individuals and institutions could make their money when the strong trends emerged. That also meant sitting with one’s hands tied until the Alligator opened its mouth to eat up trend trading profits. I loved Williams imagery, creativity and simplicity in describing market opportunities and the Alligator is one such character that he developed to help traders simplify and visualize their opportunities.

USING THE TOOL

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Jody
Jody Samuels, a former institutional trader for a US Investment Bank, and author of The Trader’s Pendulum, The 10 Habits of Highly Successful Traders, founded FX Trader’s EDGE in 2006. A premiere, global online Trading and Coaching School, FX Trader’s EDGE is home to the Forex Foundation and Elliott Wave Ultimate, progressive educational training programs to assist traders of all levels in the markets. FX Trader’s EDGE offers individual and institutional clients proprietary tools, services and education to trade Forex, CFD’s and Stocks online. One-on-one coaching is also available.
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Jody

Jody

Jody Samuels, a former institutional trader for a US Investment Bank, and author of The Trader’s Pendulum, The 10 Habits of Highly Successful Traders, founded FX Trader’s EDGE in 2006. A premiere, global online Trading and Coaching School, FX Trader’s EDGE is home to the Forex Foundation and Elliott Wave Ultimate, progressive educational training programs to assist traders of all levels in the markets. FX Trader’s EDGE offers individual and institutional clients proprietary tools, services and education to trade Forex, CFD’s and Stocks online. One-on-one coaching is also available.

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