This alligator is not a wild animal, but rather one indicator that if properly utilized will be a simple trading technique but profitable. This forex trading technique can also produce consistent profits if the traders know how to utilize it correctly. In fact, this indicator is not a complicated indicator and is quite easy to learn, especially for the first timer in forex trading.
Alligator is one indicator that is automatically available on the indicator list on MT4. This indicator, which is also a development version of Moving Average, has 3 lines moving simultaneously. These lines are called jaws, lips and teeth. These three lines are the benchmark for a trader to do forex analysis, which will be described later below.
This indicator is classified as lagging indicator, meaning that this indicator can only be a pointer in the past where the direction of movement of a pair. In MT4, this indicator falls into the Bill Williams indicator category, such as the name of the inventor. A simple and easy to understand display makes this indicator also widely used by traders to analyze forex currency pairs to get profitable and consistent trading techniques. This trading technique is also fairly simple but can be profitable if you know how to use it properly.
Preview of Alligator on the Chart
You can see in the picture how this indicator displayed. Blue line is called jaws, red is lips and green is teeth. Automatically, this indicator will provide a parameter in the form of 13.8.5, which means the period of jaws is 13, the teeth period is 8 and the lip period is 5. Other parameters that can be set are the deviation, method and application of this indicator.
For other parameters, it should not need to be replaced because it will cause distortion later. In the method column for example, there are 4 choices to describe this indicator whether it is simple, exponential, smoothed or linear weighted. If we choose one of them, the slope and angle of this indicator will change. If we change the application column, then we will replace the input data that will be used to calculate this indicator whether the closing price, opening price, highest price, lowest price, average and so on.
Adjustment Preview of Alligator
Therefore, it is recommended to keep using parameters that are automatically available in MT4 to make it easy for us. But if you want to keep changing the parameters because it is considered not in accordance with the trading system or trading techniques that you have, then there is no problem as long as you understand the parameters that you change will also affect the display indicators that you have.
As already mentioned, this indicator is a development of the actual moving average. Period that we call 13, 8 and 5 are actually moving averages of MA 13, MA 8 and MA 5. If you are familiar with the concept of moving averages before, then this indicator will also be easy to understand.
This indicator is also similar to the Bollinger Bands indicator which has three lines. The difference, candlesticks can be above the alligator or below like MA in general, while Bollinger Bands try to “confine” candlesticks remain in the lower boundary line and upper boundary line that has been set. The center line that be used is also different, where the Alligator uses the MA13 period while Bollinger Bands uses the MA20 period.
How to do a simple but profitable trading techniques with Alligator?
As already mentioned, the alligator is an indicator derived from development of Moving Average so as to see its use as well as this indicator. Easily, we can either buy when the candlestick is above the alligator or select sell when the candlestick is below the indicator. See the following picture.
Examples of Tradings by Using Alligator
- From the picture, it can be seen that we can buy when the candlestick starts to penetrate the alligator up and sell when the candlestick penetrates the alligator down.
- Another technique that can be done is to wait for a reversal of the direction of the jaws and teeth to overcome the lips. If the jaws overcome lips mean there is a possibility the price rises, if the teeth overcome the lips means there is a possibility the price will go down.
- Slightly different from other indicators, the alligator fits on a time frame that is not too short and not too long. The time frame that matches this indicator is between M30 to H4. Less than that it will look a lot of false signals and can be confusing for traders. More than that, it will be seen that alligators are slow to respond to price changes so there is a loss of potential for entry at good price levels.
- Make sure that the Alligator is not in a convoluted condition, because that means it’s going on sideways and it’s rather difficult to confirm the trend.
What about Stop Loss (SL) and Target Profit (TP)?
You can use SL by 50 pips rule, which means you set SL 50 pips from the price when you trade. Or you can also use the alligator, which is SL is set when the indicator reverses direction or when the candlestick returns to the alligator. For TP, we can set the price level for example 50 pips or the other, or we can also set it with other methods such as Fibonacci or candlestick patterns.
It is rather difficult to determine SL and TP from this indicator because there are no clear boundaries and also this indicator tends to be complicated in appearance. However, that does not mean it cannot be used, just other guides must be used to determine TP and SL points.
What to Look For?
As already mentioned that alligators are lagging indicators, aka indicators that are late in responding to prices, caution is needed in seeing trends that form. There needs confirmation from other leading indicators to give an idea of the possibility of price moving. Late indicators respond to price more clearly in large time frames.
Changing in jaws and teeth to move up or down the lips is showing a trend. Many people think this is the beginning of the entry, but it really isn’t. Although there is no problem even if the entry is based on the jaws and teeth intersection approach, this is not appropriate considering that the indicator intersects just sometimes after the candlestick reverses direction.
Finally, this forex trading technique can produce consistent forex. The thing to remember is, this trading techniques are simple but this strategy still has to stick to the trading rules that you have made before. The main rules regarding the placement of stop losses and others must remain prioritized, because there is no trading system or trading technique that can always guarantee profits up to 100%. Prevention of the risk of Margin Calls is a must and strict, if you do not want the balance in your account to be zero.
Try the sensation of “taking care” this alligator, which is harmless and can bring in consistent profits with simple trading techniques too. Hopefully this pet can bring to forex trading that is a consistent profit in the future.