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Markets trend only 15-30% of the time, while 70-85% are ranging/sideways; identifying trending markets is tough. Williams alligator indicator is a powerful solution, as it identifies both trends and consolidating markets. Like a real alligator, the Williams indicator has a jaw, teeth, and lips, represented by blue, red, and green lines, respectively. It helps traders identify bearish or bullish trends as well as pullback trades. The Williams alligator holds several trading strategies, and users can combine it with other approaches such as price action, support and resistance, or smart money concepts.
How the Williams Alligator Indicator can Help You Identify Trends and Ranging Markets
Introduction: Importance of Trend Identification in Trading
As traders, we all know that trading with the trend usually increases the win rate of any strategy. In fact, the majority of losses usually come when the markets are ranging. However, identifying trending markets to trade and consolidating markets to avoid is easier said than done. In 1995, the legendary Trader Will Williams faced the same problem and decided to create an indicator to do the work for him. He called it the Williams Alligator after a real-life alligator. In this article, we will discuss the Williams Alligator indicator and how it can help you identify trends and ranging markets.
What is the Williams Alligator Indicator?
The Williams Alligator is a technical analysis indicator that helps traders identify trends and ranging markets. Just like a real alligator, the Williams Alligator has both the jaw, teeth, and lips. The blue line represents the jaw, which is usually a 13-period moving average that’s been offset to the future by eight periods. The red line represents the teeth, which is usually an eight-period moving average that’s been offset to the future by five periods. The green line represents the lips, which is a five-period moving average offset to the future by three periods.
Why is the Williams Alligator Indicator So Powerful?
This indicator is so powerful because it does not only identify trends in the markets but it also identifies consolidating markets. The Williams Alligator has two main purposes, both of which are analogous to the daily routine of a real alligator – the first purpose is trend identification, and the second purpose is to identify consolidation.
How to Use the Williams Alligator Indicator?
The traditional way of using the Williams Alligator indicator is to take a long trade when the green line crosses the blue line upwards, and take a short trade when the same green line crosses the blue line downwards. However, using this indicator this way will probably get your portfolio into a lot of trouble. One of the popular strategies to use with this indicator is the pullback strategy. Here’s how it works:
Pullback Strategy
For a long trade, first, you want to make sure that the lines are spread further apart, with the blue line at the bottom, the red one in the center, and the green one at the top. This basically indicates a strong bullish trend, an analogy to an alligator feeding on all the bears that are taking short trades. Next, you want to wait for the price to pull back to the teeth, the red line, without touching the jaw, the blue line. After the pullback, you want a candle to close above the lips, the green line, and then enter a long trade on the open of the next candle. The stop loss is set just a few pips below the most recent swing low. With this strategy, you will exit the trade when this green line crosses below this red line.
For a short trade, first, you want to make sure that the lines are spread further apart, with the blue line at the top, the red one in the center, and the green one at the bottom. This basically indicates a strong bearish trend, an analogy to an alligator feeding on all the bulls that are taking long trades. Next, you want to wait for the price to pull back to the teeth, the red line, without touching the jaw, the blue line. After that pullback, you want to wait for a candle to close below the lips, the green line, and then enter a short trade on the open of the next candle. The stop loss is set just a few pips above the most recent swing high. You will exit this trade when this green line crosses above this red line.
Conclusion: Endless Opportunities
The strategy shown in this video is just one of the many strategies you can do using this indicator. You can even use it alongside price action, support and resistance, or smart money concepts. The opportunities are endless, and the best way to understand this indicator is by testing it out in a demo account. What do you guys think of this indicator? Let us know in the comments section below. If you found value in this article, hit the like button and consider subscribing to stay tuned. Thank you for reading, and we’ll see you in the next one.
