Warning! Make sure you understand what moving averages are and how they work before reading this lesson. Also, the following is not a traditional Alligator trading strategy explanation. Instead it is a completely different way of calculating an Alligator indicator handed down from a previous forex mentor of mine which I will now reveal for free. For an explanation of what is considered a traditional Alligator calculation and strategy you should go to Google and search for Bill Williams’ Alligator and you will find tons of good info there. This version is different from Mr. Williams’ version in that it uses both types of moving averages (simple and exponential) and it is more accurate (in my opinion) over time in all market conditions than the traditional alligator calculation.
My version of the alligator combines three moving averages, one is a smooth moving average and the other two are exponential, thus you get the benefit of both worlds. Here’s an example of it in action:
Setting Up The Alligator in MT4
First I’ll explain how it is calculated. The red MA is a 12 period, exponential, applied to the close. The turquoise second MA is a 24 period, exponential, applied to the close. And the third blue MA 13 period, smoothed, applied to Median price(HL/2) and shifted 8 periods. For more details watch my video lessons where I go into all the details of setting this up in you trading platform.
How To Use The Alligator
So now that the technical mumbo-jumbo is out of the way lets discuss using the Alligator to make money!
The red and blue MA’s are the alligators lips and the turquoise MA its tongue. So what you look for is the red MA to cross over the blue MA (above or below) at this point you have the earliest indication of a new trend. Now what will inevitably happen is the Alligators jaws will widen (red and blue MA’s move further apart) and this will cause it to “get full” meaning its gonna snap shut at which point you close the trade. In order to maximize profits you must wait until the red MA crosses the blue MA again because this is another key feature to using the alligator. By waiting until the jaws snap shut to close your position you will avoid those nasty scares that occur with many traders where they see their trade losing profit as the market corrects itself and they close their positions only to find hours later the market continues in the original direction of their trade. See the above image for this in action.
And that’s really all there is to it when it comes to this indicator. But I caution you to not simply throw this up on your MT4 platform and start trading the crossovers, because it’s not actually that simple. Since the Alligator uses moving averages, which are lagging indicators, it is very prone to fake-outs in ranging markets. What that means is that it is not a stand alone indicator, or one that can always be trusted no matter what type of market you find yourself in. It works great at predicting trend’s beginning or ending, but only in trending markets. You need to be able to use this indicator in-conjunction with other indicators in order to be successful with it. Here are some other lessons I highly recommend you read: Fibonacci Made Easy, Support/Resistance, Pivot Points, and Money Management.
Here’s my video for using the alligator indicator with more information about it’s uses!
[...] using the alligator a well as the other indicators that I use and trades that I make. Check it out here for more details. The alligator that I use is completely different from the Bill Wialliam's one. It [...]
You mention “third blue MA 13 period, smoothed, applied to Median price(HL/2) and shifted 8 periods”, what do you mean by shifting 8 periods and how do you do this?
All of these settings can be entered by double clicking on the moving average and then click on the Parameters tab in the window that pops up (you could also right click on the MA and click on MA properties). Once there you will see the Shift box where you can enter the 8 periods I mentioned. Usually this box just has a 0 in it.
You did not mention the work of the 3rd MA i.e 13 period.Also, how can we know the exact turnning point because from your diagram, there was first point where EMA 12 crossed EMA 24 but price went back and EMA 12 cross EMA 24 upward then rallies before going south again.
The 12 and 13 MA’s are the ones you want to focus on. I mostly ignore the 24 MA because it’s just not as reliable at indicating support and resistance as the other two. The exact turning point is always where you see the red MA crossover the blue MA AFTER a candlestick closes on the hourly. While the candle is still open and in action, you might see a crossover occur, but it doesn’t count until that candle closes and the crossover remains intact.
Another tip I’ll give you is to only include the blue and red MA’s on your 15 minute chart (not the 24 MA), and then use them as leading indicators for when a alligator crossover will occur. In other words, when you see the two MA’s crossover on the 15 minute chart, it’s often a good early indication that the two MA’s are about to also crossover on the hourly. Also I like to use the blue MA as support/resistance in low momentum trending markets and the red MA as support/resistance in faster trending markets.
o.k, thanks.
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once u set up the 3 moving averages what other indicators u have with that to trade with, on the alligator trade plz need all the parameters used for the alligator and the otehr indicators used with that
thanks
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Check out my YouTube video that goes over Using the Alligator where I’m pretty sure I discussed combining other indicators that I teach here. The main indicators to watch for include daily and weekly pivots plus major support/resistance lines that I include on my chart. And lastly the fundamental data is something to consider especially during slow weeks where not much data is being released and therefore the markets aren’t expected to do much other than range. In that case you ignore the alligator all together.
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