Trading strategy by using indicators have often seen and heard. However, to use two indicators in trading, of course, you need different tricks and tips. Bollinger Bands (BB) and Alligator are two indicators that in principle have something in common, which is based on the Moving Average. With this similarity, it’s no wonder that the two will coincide with each other on a chart, but can still be analyzed.
Other similarity, the two indicators consist of 3 lines. As already known that BB has a center line, lower limit and upper limit. Whereas Alligator has jaws, teeth and claws. From these three lines, we can later buy or sell entries, depending on how the candlestick responds to these two indicators.
The difference, BB is an indicator that tries to read the price without letting the candlestick out of the BB range. While the Alligator, is more likely to show a trend so there is a possibility that the candlestick is above or below this indicator. In addition, BB does not recognize the term divergence because there is never a line crossing other lines. Meanwhile in Alligator, there is a possibility of cutting the lines between the three so that there is a possibility of divergence.
Before starting to dissect the use of these two indicators, it’s a good idea to have a look both at the MT4 screen. Look at the picture below.
Display of Bollinger Bands and Alligator on the MT4 Screen
From the picture above, the red line is BB and the other is the line from the Alligator. As can be seen that the Alligator is always close to the BB midline and occasionally goes down or up above the BB midline. The alligator itself never crosses the bottom line or upper line of BB until it is too far away, before finally re-entering the BB range.
By looking at such a display, it can be concluded that the two actually can complement each other and tend to indicators that follow trends. Then, how to use these two indicators to trade forex?
Use of Indicators for Forex Trading
If done correctly, this simple trading strategy can make a profit. Moreover, this forex trading strategy can bring in consistent profits if trading management and trading system which is used are correct. The use of these two indicators is quite easy, and the analysis by combining the two is also easy to understand.
There are two approaches to trading using these two indicators, counter the trend and following the trend. If you want to counter the trend, then you should wait for the candlestick to touch the bottom line BB and the Alligator is twisting. Alligators which are twisting show a sideways trend, so it is suitable for those who want to fight the direction of the candlestick.
See the following picture.
Entry for Trading Using Bollinger Bands and Alligators
- At times like this, stop loss (SL) can be determined using the percent loss approach or with pips.
- Temporary profit targets can be determined by waiting for the candlestick to touch another boundary line. Or if it is too long, it can be when the candlestick touches the BB center line or use the pips approach and the percent profit.
- If you want to follow the trend, the opposite. The candlestick will always be at the limit of the BB and the Alligator will look consistently up or down. At times like this, the benchmark uses Alligator more as a guide for analysis than BB.
- When the market is going up as shown below, the candlestick is consistently near the upper line of the BB and continues above the Alligator. For the determination of SL, may be set with a BB underline or percent loss. As for the TP, it can be done until waiting for the Alligator to start to intersect or when the BB starts to move horizontally and the candlestick away from the boundary line.
- BB when the trend is happening acts as a guide to the range of movements of the currency pair. Thus, we can see that the candlestick will not go out of the existing price range and we can set a strategy for TP if the candlestick starts to move away from BB.
Trends and Indicators of Bollinger Bands and Alligator
It should be keep in mind that the system using these two indicators does not always provide certainty of profit and success. Therefore the loss limit must remain and be installed at every time an entry is carried out in the form of SL. Indicators are only tools to see what is likely to happen, not tools to see the future that will happen.
Always obey the rules when making transactions, because most traders make the mistake of breaking the rules they made themselves. This rule includes not opening new positions if the existing ones are not yet hit SL or TP. Do not get carried away quickly when experiencing losses or when making a profit. Keep doing the analysis with good and focused mind to achieve forex trading system that yield consistent profits.