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Alligator Strategy
Master trend following and momentum trading with our comprehensive Alligator analysis
Overview
- •The Alligator indicator, created by Bill Williams, helps identify market trends and periods of consolidation.
- •It consists of three smoothed moving averages that represent the alligator's jaw, teeth, and lips.
- •The indicator helps traders determine whether the market is in a trend or a consolidation phase.
How Alligator Works
1.
Jaw (Blue Line)
A 13-period smoothed moving average shifted by 8 periods, representing the long-term trend.
2.
Teeth (Red Line)
An 8-period smoothed moving average shifted by 5 periods, representing the medium-term trend.
3.
Lips (Green Line)
A 5-period smoothed moving average shifted by 3 periods, representing the short-term trend.
Key Strategies
1. Trend Identification
- •When all three lines are aligned and moving in the same direction, it indicates a strong trend.
- •When the lines are intertwined, it suggests a ranging or consolidating market.
2. Entry Signals
- •Buy when the Lips cross above the Teeth and Jaw in an uptrend.
- •Sell when the Lips cross below the Teeth and Jaw in a downtrend.
3. Exit Signals
- •Exit long positions when the Lips cross below the Teeth.
- •Exit short positions when the Lips cross above the Teeth.
Limitations
- •The Alligator indicator can give late signals in fast-moving markets due to its smoothing nature.
- •It works best in trending markets and may give false signals in ranging markets.
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