The triple exponential moving average, also known as the TEMA, is a single line configuration on the chart. It smoothes the price of the equity three times using an EMA formula and then calculates the change in the EMAs based on https://1investing.in/ the result for the previous day (n-1). Traders use the TEMA to enter and manage trades during strong trending markets. Conversely, the TEMA is not a great tool when the market is ranging, since it provides many fake signals.
Williams believed that individuals and institutions tend to collect most of their profits during strongly trending periods. In any trending strategy, the Alligator indicator is used as the basis to determine trend direction. Entry points are formed at the stage of the emergence of a new trend movement or during pullbacks; the trader can choose additional filters to determine trading signals. This can include oscillators such as Stochastics, RSI and CCI to help identify market lows and highs. As for non-trend indicators, you can combine the Alligator with the RSI indicator. The RSI gives strong reversal signals based on the divergence.
The resting phase ends when the moving average lines stop crossing one another and move either in the upward or downward direction. If the moving average moves upwards, it signals traders that there is a strong uptrend and signals them to place long orders. If the moving averages move downward, it signals traders that there is a strong downtrend and signals them to place short orders. The alligator indicator is a technical indicator that helps traders identify the direction of the trend and its strength.
- It’s not the most exciting time for trading, as there’s low volatility and not much movement.
- Here are some of the frequently asked questions about the Williams Alligator indicator.
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Traders who enter trades against the trade by mistake are doomed to failure. The strength of this trend will be proportional to the time the Alligator slept. The longer the market has been in the accumulation zone, the stronger the momentum alligator indicator trading system will be. Now you need to spot a moment for the price to start to trade above or below all three lines of the indicator. Research led the trader to the conclusion that the market is chaos and trading is a psychological game.
Are there any specific timeframes the indicator works best with?
The Alligator indicator uses three smoothed moving averages, set at five, eight, and 13 periods, which are all Fibonacci numbers. The initial smoothed average is calculated with a simple moving average (SMA), adding additional smoothed averages that slow down indicator turns. The Alligator strategy is often used together with the Fractals technical indicator. 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. Next, after the Alligator has awakened and started opening the mouth, you put an order at the breakout of the nearest fractal. The fractal must be above or below the Alligator teeth, depending on the trade direction.
Construction of Alligator indicator
Here’s an example of the Alligator indicator breakout trading strategy. Depending on the position of the lines, the state of the market can be determined and with the help of additional filters, trading opportunities can be identified. The fractal indicator is one of the Bill Williams indicators. It’s used to identify trend potential and reversal points of the market. Thus, the TEMA setup should be carefully chosen according to market volatility, the chart range, and the trader’s style. In addition, the TEMA can be combined with an extra moving average in order to validate signals.
What are some popular Alligator indicator strategies?
When you use the Alligator, check several timeframes of the chart. When the Jaw, the Teeth, and the Lips are intertwined, it means the Alligator is asleep and there’s no uptrend or downtrend at the market. Bill Williams recommends staying out of the market during such periods.
Since the market evolves from trend to range as Williams has stated, we can think of the market much like an Alligator and how it lives in the wild. Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading!
Under the cover of price charts and technical indicators, in reality, any market only represents the subjective psychological valuation of any given asset. So, here are some trading tools you can combine the indicator with. Interestingly, the moving average lines of the Alligator indicator act as dynamic resistance levels in a down-trending market, so pullbacks tend to reverse around those moving averages. When the Alligator is showing a crossover of the fast green line above or below the slower lines (blue and red), with all three lines diverging as indicated in fig.
The trading system applies Fractals and Awesome Oscillator oscillators as additional filters to define entry points. Based on this strategy, we need to get signals of buy and sell depending on the crossover between lips, teeth, and jaw values. If the lips value is greater than the teeth value and the jaw value, this will be a buy signal.
Trading pullbacks in a trend
Taken 7 Fibonacci numbers, painted in the colors of the rainbow and highlighted when the rainbow fan is up or down. While you may not be able to pick the exact price the trend begins, getting in as close to the beginning as possible should be your goal. Using a Forex example, this is a daily price chart of the GBPUSD leading into December 2021. The value of an investment in stocks and shares can fall as well as rise, so you may get back less than you invested.
You can use the default settings or change whichever parameter you want. For example, ‘Apply to’ can be the close price or median price. The 5-period moving average is most sensitive to price movements and is the first to move in the new direction of the price, followed by the 8-period, and then, the 13-period. Then the Alligator woke and an uptrend commenced (indicated by the third arrow), the “eating with an open mouth” phase. The price continues to rise extremely until the Alligator became sated and then slept for a brief period and the cycles continue again and again.
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The ratio between profit and potential loss (Reward/Risk) was 2.59. Each of the groups describes a certain state of the market at the current moment. Let me explain how to trade with Bill Williams’ Alligator indicator. We have the EA attached in the top right corner and we can receive our desired signals the following are examples from testing. These three lines indicate if a bullish or bearish trend is in effect and where it is going to move in the coming future.
Its main purpose is to seek out trends, and to determine possible entry and exit points of your forex trade. If you want to adjust Alligator settings to different timeframes, you should perfectly understand this indicator’s work principles. It should be borne in mind that the shorter the working timeframe, the greater values should be set for the indicator formula.