Bill williams 3 lines: How to combine Alligator strategy with cluster analysis

The combined application of the two Williams’s indicators provides accurate entry points, with the Fractals tool serving as an additional filter. You enter a trade at the fractal breakout when the market trend has already acquired a direction. It is the first to react to the changes in the balance of buyers and sellers in the price chart. When the lip line crosses slower MAs, we could assume that the trend is about to start. I should note that the three balance lines are the moving averages that are applied to the median value ((high+low)/2), not to the bars’ opening or closing prices.

Moreover, he believed that fundamental analysis is something like crystal-ball gazing. As you know, when we trade forex, the market can be either trending or consolidating. The price moved in momentum for about 30% of the entire time; it trades in correction or accumulation for 70% of the time. The Alligator strategy can accurately identify the market situation. In this phase, both bars on either side of the zero line turn green. This is a signal that a trend has formed in the market, and traders can now place trades in the direction of the new trend.

Another benefit of the Williams technical indicator is that it generates the entry points when the momentum is just emerging. Every trader that chooses a trading platform and establishes his retail investor accounts wants to enter a trade at good prices and exit at the peak of a trending price movement. Using the Alligator, you will be able to pick up strong market moves and take profits at the end of the trend. The Fractal indicator has many applications in trading.

It helps to enter a trade at the very beginning of a trend. Wait until the Alligator wakes up and all its lines arrange in a particular direction. The lip line should be above the teeth line in the uptrend and below – in the downtrend.

Alligator settings for the timeframes of H4 and longer

The consolidation state of the https://forexbitcoin.info/ market is characterized by the closed mouth of the Alligator. The balance lines of the lips, teeth, and the alligator’s jaws are interwoven. The Alligator Forex trading strategy suggests that you should watch the arrangement of lines in the chart.

It is calculated by taking a series of prices that are added together… The Keltner Channel or KC is a technical indicator that consists of volatility-based bands set above and below a moving average. The channels are usually set two Average True Range… Fractals can appear with only one candle to the right of it but be aware that this is an unconfirmed fractal because the price action may pierce through the level. So in order for a fractal to appear and stay on the chart forever, the trader must wait for 2 candles to the right of the fractal. Mr Williams developed a unique theory by combining the Chaos Theory with trading psychology.

Trading Setups Review

Visually, the lips line moves first before the teeth follow. When the jawline also moves, it’s confirmation of a changing price trend. The hungry alligator is about to get his or her breakfast. Williams was something of an innovator in the trading world. He was one of the first to implement the notions of behavioral science and psychology into his own indicators and analysis tools. Of all the animals that are beloved by humans, alligators rank low on the list.

The logic behind Fractals is that price action is inherently repetitive, and the indicator can help traders decipher the price patterns in play. A fractal formation in the market is made up of 5 bars, in which the third bar represents either the highest high or the lowest low. The Fractal indicator prints arrows on these highs and lows. An arrow above a price bar is a buy fractal, whereas an arrow below a bar is a sell fractal.

How to start trading

The best profit firstframes to trade with the Alligator are the daily, four-hour, and one-hour timeframes. It makes no sense to use the Alligator in shorter timeframes, as there will be many false signals due to the price noise. The Forex Alligator or the Williams Alligator is a technical indicator that defines the market trend and generates entry points at the beginning of the price momentum. This article deals with a popular Alligator indicator. It will help you analyze any market, identify the trend, and spot the entry points at the beginning of the trending market, giving an advantage over most traders. Bill Williams’s inventions have made an outstanding contribution to modern trading.

To define the price target I tend to look at some of the more classic technical analysis. Essentially, we are looking at important resistance and support levels or we wait for a trend reversal or the start of a correction. This means a reversal price pattern or a divergence with price at oscillators.

This makes the indicator useful not only as a trend predicting tool, but as a day trading indicator. Below we’ve laid out illustrations to help you get started with the indicator. Some traders won’t take profits until the green moving average has crossed all the way through both of the other moving averages, so that is something else to think about as well.

The longer he sleeps the hungrier he becomes – the longer the market stays without a trend, the more vigorously it will break into a new trend. To learn more about indicators you could combine with the Williams Alligator, read our Technical Analysis section. No matter your experience level, download our free trading guides and develop your skills. We give calls from Monday to Friday in suggested intervals. In case we couldn’t get through, we will try again at the same time the next day.

Zoom out of the chart using the mouse wheel to recognize these patterns. If you are zoomed in, you won’t be able to see the contraction and expansion. Once you know how to recognize a sideways market from a trending market, you can use the indicator for your William Alligator strategy.

The Alligator is sleeping.

When the market is trading flat, neither the Alligator alone nor the combination with Fractals will not work. Starting from the European trading session, the Alligator begins to wake up, the lines start to line up. During the first trading hours of the European session, the price closes above the Alligator’s mouth. We notice this moment and decide to look for an entry point to buy gold. At the end of the trading session on January 18, 2021 – the beginning of the trading session on January 19, 2021, the Alligator fell asleep.

• If you want to use the Alligator with these indicators, refer to his books for more information.
• But, as a general guide, it can be deployed successfully, as it has been for decades.
• The Alligator’s Lips, the “Green” line, is a 5-period Smoothed Moving Average, moved by 3 bars into the future.
• I find this trading method similar to the moving average fake-out by Mark Fisher which also uses three moving averages.

Many professionals favor stochastic oscillators because of their signal accuracy and versatile applications. It depends on the timeframe where you use the Alligator in a trading platform. If you trade in long timeframes (H4 – D1), the signal period will last from one week to one month. When you trade on a one-hour chart, the period ranges from one to four days. When you work in shorter timeframes, a trading signal works out during one or two trade sessions.

The green line (Alligator’s Lips) is the Balance Line for the value time frame, one more level lower (5-period Smoothed Moving Average, moved by 3 bars into the future). These basic fractal trading techniques should lead you in the right direction if you have been searching for a great strategy to use with these indicators. There are many different strategies you can use with these indicators, but in our experience, we like this combination of the Bill Williams indicators.

You should keep these instruments on your radar especially if price action is hinting at an increase in momentum. The best time to get on board a trend move is just before it happens. Once the first 2 lines start to pull away from the blue line, the blue line trends in the same direction – the Alligator has opened it’s jaws and is looking to feast. The trader is looking to feast on the price action that is happening. We will also see the lips and the jaw start to turn in the direction of the green line. Many traders will enter the market following a candle close above/below all 3 lines at this point.

Still, traders should place buy orders when there are two consecutive green bars above the zero line. If you wish to go long below the zero line, you should wait for a third consecutive green bar because you will not be trading with momentum on your side. Similarly, you should place a sell order after two consecutive red bars are printed below the zero line.