Alligator Trend Forex Trading Strategy

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Trading the forex markets could be quite confusing for many. New traders are presented various approaches to trading the market. Often these approaches not only differ, they also contradict each other. Trend following and momentum traders would trade pairs differently from mean reversion traders. Breakout traders would always have a contradicting view of the market compared to traders who trade on bounces off of support and resistances. Algorithmic traders have a different view of how to trade the market compared to price action and pattern traders. The forex market is a labyrinth of ideas. Different traders, different approaches, different views of the market. New traders often get lost in this maze of ideas. It is not uncommon to see traders who have more squiggly lines on their charts than a child could scribble. However, this could sometimes be counterproductive. Sometimes, simplicity is much better than sophistication.

The Alligator Trend Forex Trading Strategy is a strategy that strikes the balance between simplicity and sophistication. It makes use of technical indicators in order to aid traders in making decisions, yet it still it does not go overboard by putting in too much in the chart. It allows traders to easily follow a trading plan instead of flooding traders with too much information.

Williams Alligator Indicator

The Alligator indicator is a trend following momentum indicator developed by the legendary trader Bill Williams. This indicator is intended to aid traders in navigating any trading markets through its phases, whether it is trending or chopping sideways.

The Alligator indicator is composed of three Smoothed Moving Averages (SMMA) set at five, eight and 13 periods. These parameters are based on a Fibonacci ratio, which Bill Williams found to work well based on his tests.

The five-period moving average is referred to as the Lips, the eight-period moving average is the Teeth, and the 13-period moving average is the Jaw. Whenever the three moving averages are contracting, the market is considered to be in a contraction phase. Bill Williams refer to this as the alligator being sated. Then, as the market starts to expand, the gaps between the moving averages also tend to widen. Bill Williams refer to this as the alligator opening its mouth to feed.

The 200 EMA

The moving average line is one of the most commonly used indicators to aid traders in identifying trend direction. Often, traders would identify the trend based on the location of price in relation to the moving average or the direction of the slope of moving averages. Other traders use a band of moving averages in order to identify trend.

However, there are certain moving average parameters that are widely used and accepted as a standard. One of this is the 200-period moving average. Many professional technical traders use the 200-period moving average as the standard gauge to determine the long-term trend. Traders would often base trend direction based on the location of price compared to it. Many traders also avoid trading against it in order to keep their trades aligned with the long-term trend.

The iTrend Indicator

The iTrend indicator is a custom technical indicator which indicates trend direction based on momentum. It does this by plotting to lines on a separate window. The bands crossover each other whenever the iTrend indicator detects a change in trend direction. The lime green line crosses above the red line whenever it detects a bullish trend reversal, while the red line crosses above the green line when it detects a bearish trend reversal.

Trading Strategy

This trading strategy is a crossover strategy based on Bill Williams’ Alligator indicator.

However, instead of taking every trade signal that presents itself, we will be filtering out trades that go against the long-term trend represented by the 200-period Exponential Moving Average (EMA).

We will also be looking for trade setups that are in confluence with iTrend indicator as it also complements the Alligator indicator well.

Crossover entry signals generated by the Alligator indicator should be aligned with the 200 EMA and should be in confluence with the iTrend indicator.

Indicators:

  • Alligator
  • i_Trend
    • Band Period: 50
  • 200 EMA

Timeframe: preferably 4-hour and daily charts

Currency Pairs: preferably major and minor pairs

Trading Session: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • Price action should be above the 200 EMA indicating a bullish long-term trend
  • The lime green line of the iTrend indicator should cross above the red line indicating a bullish trend reversal
  • The Lips (lime) of the Alligator indicator should cross above the Teeth (red) and the Jaws (blue) indicating the bullish eating phase of the alligator
  • The bullish trend reversal signals of the Alligator indicator and the iTrend indicator should be somewhat aligned
  • Enter a buy order on the confluence of the above conditions

Stop Loss

  • Set the stop loss at the support level below the entry candle

Exit

  • Close the trade as soon as the lime green line of the iTrend indicator crosses below the red line
  • Close the trade as soon as the Lips (lime) crosses below either the Teeth (red) or the Jaws (blue)

Alligator Trend Forex Trading Strategy 1

Sell Trade Setup

Entry

  • Price action should be below the 200 EMA indicating a bearish long-term trend
  • The lime green line of the iTrend indicator should cross below the red line indicating a bearish trend reversal
  • The Lips (lime) of the Alligator indicator should cross below the Teeth (red) and the Jaws (blue) indicating the bearish eating phase of the alligator
  • The bearish trend reversal signals of the Alligator indicator and the iTrend indicator should be somewhat aligned
  • Enter a sell order on the confluence of the above conditions

Stop Loss

  • Set the stop loss at the resistance level above the entry candle

Exit

  • Close the trade as soon as the lime green line of the iTrend indicator crosses above the red line
  • Close the trade as soon as the Lips (lime) crosses above either the Teeth (red) or the Jaws (blue)

Alligator Trend Forex Trading Strategy 2

Alligator Trend Forex Trading Strategy 3

Conclusion

This strategy is an improved version of the standard crossover strategy based on the Alligator indicator, which is a working trading strategy.

Taking trades that are filtered based on the long-term trend improves the probability of the trade setups taken. Trading on confluences with the iTrend indicator, which is a complementary indicator, improves the probability of the trade even better.

This strategy is a working strategy that could rake in huge profitable trades. Using it with wise trade management skills would also bring in consistent profits.


Forex Trading Strategies Installation Instructions

Alligator Trend Forex Trading Strategy is a combination of Metatrader 4 (MT4) indicator(s) and template.

The essence of this forex strategy is to transform the accumulated history data and trading signals.

Alligator Trend Forex Trading Strategy provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.

Based on this information, traders can assume further price movement and adjust this strategy accordingly.

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How to install Alligator Trend Forex Trading Strategy?

  • Download Alligator Trend Forex Trading Strategy.zip
  • *Copy mq4 and ex4 files to your Metatrader Directory / experts / indicators /
  • Copy tpl file (Template) to your Metatrader Directory / templates /
  • Start or restart your Metatrader Client
  • Select Chart and Timeframe where you want to test your forex strategy
  • Right click on your trading chart and hover on “Template”
  • Move right to select Alligator Trend Forex Trading Strategy
  • You will see Alligator Trend Forex Trading Strategy is available on your Chart

*Note: Not all forex strategies come with mq4/ex4 files. Some templates are already integrated with the MT4 Indicators from the MetaTrader Platform.

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