What is the “Alligator” trading strategy?
The “Alligator” trading strategy is a technique based on the Alligator indicator, which was developed by Bill Williams. This indicator consists of three moving averages called the jaws, teeth and lips of the alligator. The strategy is mainly used to identify the start of a market trend and to profit from it.
How does it work?
- Pine (blue, 13 periods): This moving average represents the long-term trend and is shifted 8 periods into the future.
- Teeth (red, 8 periods): The medium-term trend is represented by this average, which is shifted 5 periods into the future.
- Lips (green, 5 periods): This short-term trend indicator is shifted 3 periods into the future.
If these lines are intertwined, this indicates a dormant market (the alligator is “sleeping”). When they start to separate, the alligator wakes up, which is a sign of the beginning of a trend.
Why do traders use this strategy?
- Trend recognition: This helps to recognize the start of a new trend at an early stage.
- Trading signals: Buy and sell signals are generated when the lips (short-term trend) cross the other two lines (medium-term and long-term trend).
- Flexibility: This strategy can be applied in different markets and time frames.
Risks and considerations
- Market conditions: The strategy works best in trending markets. False signals can occur in sideways markets.
- Additional indicators: It is often recommended to use additional indicators or analysis methods to increase accuracy.
- Psychological aspects: Discipline and patience are important as the Alligator indicator tends to lag in dormant markets.
Conclusion The Alligator strategy is a useful tool for traders to identify market trends and generate trading signals. As with any strategy, it is important to have a solid understanding of how it works and to apply it in the context of comprehensive risk management.
Please note that this statement is of a general nature and should not be construed as specific trading advice. Traders should always consider their own analysis and risk appetite.
