Williams Alligator: Overview, How to Use, And Pros and Cons

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When the institutional forex market became a reality in the 1990s, several investors emerged as the discipline's gurus. Bill M. Williams, who lived from 1932 to 2019, was well-known for his trading skills, investing in commodities, foreign exchange, and books. The Williams technical analysis indicator can be used as a part of a successful trading plan since it can determine when long or short positions should be entered or completed and indicate when trends are emerging, decreasing, or gaining strength.

Beyond other pertinent ideas, Ezekiel Chew also acknowledged the Williams Alligator as a crucial indicator that aids novice traders in recognizing and differentiating market trends and guides them to avoid the issue of losing money quickly in the market at the beginning of their trading careers. This article will discuss the Williams Alligator's value and drawbacks.

What is Williams Alligator

A technical analysis technique called the Bill Williams Alligator indicator employs smoothed moving averages. The indicator begins by calculating a smoothed average using a simple moving average (SMA). It operates on three moving averages with periods of five (5), eight (8), and thirteen (13). When building trading strategies, the indicator uses convergence-divergence relationships, with the jaw making the slowest rotations and the lips making the fastest.

In part, trading losses can be attributed to traders' reliance on various analyses and rules. It is necessary to design a trading strategy based on human psychology rather than solely employing technical or fundamental research because the market is constantly changing, and one cannot rely on the patterns and theories that have been used in the past. As a result, the Williams Alligator concept was born.

According to Bill Williams, the market's level is that napping is followed by price-hunting until it's time to sleep again. He recognized a similarity between an alligator's behavior and this narrative. The longer the alligator sleeps, the more greedy it grows, and logically, the stronger the market action will result. However, the alligator indicator can detect a trend's absence, emergence, and direction.

Williams Alligator Indicator for Beginners

Many professional traders have long used the alligator approach because a scientific alligator indicator benefits experienced and beginner traders alike, many professional traders strongly advise utilizing the alligator forex strategy.

As a beginner, if you only know the basics of the alligator approach, you can use this indicator to make a ton of money. This indicator has helped many traders profit greatly. The best entry and exit points are crucial to effective forex trading. Therefore, if you can determine the optimal market timing and timing for entering and exiting, you will be successful. Traders will likely use this indicator to determine the trend and its potential direction.

Understanding how to find support and resistance on the market and how the Alligator indicator functions are essential for using the indicator. Setting stop losses for this trading method requires the usage of support and resistance. The secret to this trading approach lies in comprehending the signal. To minimize unnecessary risks, the alligator stays out of trades while the market consolidates sideways.

Your charting or trading platform's indicator list allows you to add the alligator indication to your charts. The three moving averages operate as the alligator's jaw, teeth, and lips, opening and shutting in response to shifting trends and trading ranges:

• Jaw (blue line): Starts with a 13-bar SMMA and smoothes out values after that by eight bars
• Teeth (red line): Starts with an eight-bar SMMA and smooths out values by five bars
• Lips (green line): Starts with a five-bar SMMA and smoothes out values with three bars

The indicator uses convergence-divergence correlations to construct trade signals, with the jaw making the slowest turns and the lips making the fastest turns. A short sale opportunity is indicated by the Lips crossing through the other lines downward, whereas a buying opportunity is indicated by the Lips traveling upward. Williams describes the alligator as “sleeping” when crossing downward and “waking” when crossing upward.

How to use the Williams Alligator Indicator

The indicator emits signals when the three lines—Jaw, Teeth, and Lips—converge and diverge. The Lips line rotates and crosses the fastest, indicating a shift in trend, whereas the jaw turns and travels the slowest.

Williams frequently linked indicator characteristics to those of animals; for example, he once equated an upward cross to an alligator waking up and a low cross to a short position. According to Williams, when the three lines diverge noticeably, there is a strong indication that the alligator's mouth is being fed or is feasting.

On the other hand, the three lines signal a trend's waning and potential reversal or the impending arrival of a significant move when they start to condense and converge. Before taking action, traders want to look for a cross between the green and blue lines or a candlestick's closing through the indication lines.

Trading the Williams Alligator Indicator

Statistics have indicated that close range intervals typically last between 70% and 80% of the time on the forex market, but the investor's goal is to make money when prices break out of such circumstances and start a new trend. The trend is always your friend, and the best strategy for continuously winning in this setting is to remain patient before riding a movement to its full potential. In other words, waiting until opportunities present themselves during the 20 percent to 30 percent trending intervals is necessary.

When the threads are intertwined, “transparent,” and when the lines cross, they are the crucial points of interest. The alligator is thought to be asleep once intertwined. The lesson here is one of patience. The alligator eats when the lines are spaced widely. If the candlesticks are above or below the alligator, continue in the trade. It is time to think about entering or departing when the lines converge or cross, though a momentum indicator would establish a better departure point.

Traders pay close attention to candles that are lowering. As mentioned earlier, an exit signal happens when a candle closes above the alligator's jaws or the middle red line. The alligator would have kept you in the trade for a while longer for a little bit more gain on the next downward swing because of this.

Pros and Cons of using the Williams Alligator Indicator

The pros of using the Williams Alligator Indicator

• The indicator is used by many traders, who attest that it provides a systematic way to enter and leave the market that aids in risk management.
• The indicator also identifies the broad trend. The gap between the moving averages also reveals the severity of the trends; an alligator's jaws would open wider with more substantial movement, broadly identifying the trend direction and reducing the options available to day traders.
• The Williams Alligator makes the market simple for traders of any skill level to understand because it shows the market in several phases, from when the alligator sleeps to when it wakes up to feed.

The cons of using the Williams Alligator Indicator

• The disadvantage of this indicator is that, like most indicators, it strongly relies on the fundamentals of support and resistance to assess risk.
• The indicator will flash false positives when the three lines frequently cross each other owing to rough market circumstances. The alligator is believed to be sleeping and hasn't yet woken up, encouraging traders to wait for additional confirmations or until the price reflects the trend reversal shown by the signal.

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There is no doubt all these things may seem a bit technical to follow. In fact, the price makes so many wild swings each day that it can be very hard to measure buying pressure or selling signals. Also, learning all the technical analysis you need for forex takes more than just a day. Instead of relying on the odd article here and there, you may want to get a full detailed course to take you through all these situations.

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Conclusion: Williams Alligator

The Alligator indicator is a well-liked technical tool that can assist traders in bettering their entry and exit positions in the turbulent forex market. However, it can also help you maintain a position until the trend has reached its peak. Beginners often hold onto losing positions for too long and close winning ones far too quickly. In both circumstances, the Alligator can be helpful.

However, the signals from an alligator can never be completely accurate, just like with any other technical indicator. Although false signals might happen, the reasonable indications are frequent enough to provide a forex trader an advantage. The ability to interpret and comprehend Alligator indicators requires practice, and it is always advised to combine the Alligator tool with another indicator or by keeping an eye out for a consistent pattern of price behavior as a sign of potential trend changes.

Williams Alligator FAQs

Is the Alligator Indicator the best?

Be aware that there is no best indicator. But indicators work best when combined with other indicators to achieve confluence, i.e., confirmation of a position by at least three (3) different indicators.

Remember that the alligator is a lagging indicator and that it performs best after a lengthy period of sleep. When a powerful impulse wave develops, it tends to keep you riding the wave a little bit longer than most other trend-type monitoring indicators, but it is ineffective in choppy markets. Your main goal should be consistency at the end of each trading day, and alligator technical analysis should eventually provide you an “advantage.”

What is the alligator strategy?

The indicator informs us of three stages of market development, and if we grasp them, we can create a straightforward trading strategy:

The market is at rest when the three lines are entwined; do nothing and engage exclusively in range trading.

When the green line (the lips) crosses the red and blue lines, the alligator is likely waking up. Watch for breakouts.

When a candle closes above or below all three lines, the alligator is eating, and you should be trading pullbacks.