Moving averages is one of the most beloved and classic instruments like the Forex and binary options trading. In the last article I talked about the Bollinger bands which is based on moving averages, today I will pay attention to another interesting indicator – it is the Alligator, which, together with the moving averages gives very good entry signals in the market.
oving averages gives very good entry signals in the market.
Alligator indicator: easy strategy — accurate result
The alligator indicator was invented by Bill Williams (who is the author of many technical analysis indicators) and represents a sort of compass that determines the direction of the market.
The initial conditions of the strategy:
- the alligator indicator with the settings (26, 14, 6);
- the period of option expiry of 5 minutes.
The general rule of entry into the market can be formulated as follows:
- if the indicator shows an upward trend (the green block), then the trading is on the rise. The trend line should be placed sequentially: green, red, blue (from top to bottom);
- descending — open a short position (the green block). Blue line on top, green bottom, red in the middle.
Below there are two examples of market entry in the long and short positions:
- Short position is opened only when the market is in a downtrend and the price is approaching the green line and repels from it.
- Similar conditions for opening a long position, but only on an uptrend.
The use of only one alligator indicator gives a lot of false signals, because for a more accurate trade you can use the auxiliary, already known indicators. For example, RSI (14), which can be deciphered as follows:
- the indicator line is above level 60 then the price goes up;
- above 85 — the price may soon turn around;
- below 40 — the price steadily goes down;
- below 15 — the trend may reverse.
Thus, the trader must not only catch the moment, when the price pushes off from the green line, but when the RSI will be in the corresponding zone (60-85 — 15-40 for an uptrend and for a downtrend). The following is an example of a good signal for opening long positions.
The alligator indicator can be combined with moving averages. As the basic parameters, we set the moving average (26, 14, 6). As a target we choose the moving period 14, since the green line is too close to the price, giving false signals. Add the RSI and use the recommendations above.
That’s the whole strategy. 3 indicators give optimal signals for maximum swinging about the point of entry. It is not recommended to trade on a flat at the time of the chaotic motion and crossing of lines of the alligator indicator (this indicates uncertainty in the market).