Crypto Trading With Alligator Indicator- Crypto Academy /S5W3-Homework Post for kouba01

1.) Discuss your understanding of the use of the Alligator indicator and show how it is calculated?

Alligator indicator is made up of three smooth moving averages inverted by Bill Williams for identifying trends and directions on a chart. These three smooth moving averages are represented in three different colors (blue->Jaw, red->teeth, and green->lips.) the jaws, teeth, and lips are practically used to alert traders on the presence of the market states. These states can help traders using a range trading strategy, a trend trading strategy, or a breakout strategy.

From the inverter, the indicator got the name William Alligator, used to display moving averages by reading bars into the future, which aid in anticipating future trend directions. The alligator indicator setting is:

• The Blue (Jaw) line is set to 13 periods and displace 8 periods into the future
• Red (Teeth) line moving average is set to 8 periods and is moved 5 periods into the future
• Green (Lips) line moving is set to 5 periods and pushed 3 periods into the future

Screenshot Tradingview

• How does this indicator work?

Like any other market, it is all about from trend to range as we can look at the market as alligator:
-> Alligator is sleeping when the market is ranging
-> Alligators wake up when the market is about to show a sign of a trend.

To know if the alligator is sleeping or awake, you need to closely monitor the movements of the three lines.

• 1.) No market trend

there is no trend in the market when the three lines intertwine with each other. This is often during low volatility forcing traders to find another indicator to trade.

• 2.) Possible trend forming

The green line(Lips) is the fastest moving average, as the green line crosses the slower moving averages. At this point, a trader will want to put on attentive eyes as this shows that the alligator is about to wake up. At the same time, we notice the slower averages moving in the same direction as the green line.

• 3.) Determine trend direction

When the green line crosses the red line and the blue line depending on the market states, we can start considering an uptrend. Another scenario is when the red line heads upward and crosses the blue line, and a possible uptrend is in place.

As I mentioned above, the alligator is said to be sleeping when the three lines intertwine. At the moment in the market, nothing interesting is happening. The longer the alligator is asleep, the higher the aggression when it wakes up.

• How to calculate

Alligator indicator is calculated by applying the following formulas, starting by calculating the Media price of each candlestick before moving to calculate the different alligator lines following the period that was set and push period.

That is the default setting which is the standard parameters recommended by Bill Williams (invertor)

• Jaws period = 13; shift = 8;
• Teeth period = 8; shift = 5;
• Lips period = 5; shift = 3.

2.) Show how to add the indicator to the chart, How to configure the Alligator indicator, and is advisable to change its default settings ?. (Screenshot required)

I will be using Tradingview to demonstrate how to add and configure William's alligator indicator. I log into my account Tradingview , selected my pair and click on (fx)indicators at the top of the chart

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Apop window appears, and search the indicator by start typing Willi... Click Williams Alligator from the search results.

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We have all three moving averages (blue line ->Jaw, red line->teeth, and green line ->lips.)
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• How to Configure

Click to the setting icon
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A popup window appears, when we have the input. here we can change the parameters from the default setting to any customized setting of our choice.

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The next tab on the popup window is the style, where the colors can be changed.

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The next tap is the visibility and range

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After all, changes, click ok to apply changes to the chart.

3.) How do we interpret this indicator from its 3 phases: the period of rest(or sleep), awakening, and the meal phase?(Screenshot required)

Interpreting alligator indicators means the trader will need to understand the different stages and conditions of the three lines. That is the Sleeping stage, the awakening stage, and the feeding stage.

The sleeping stage is when the lines converge interwinding between them.
the awakening stage when the lines start moving away from each other
The feeding stage is when lines move apart from each other at a considerable distance.

• 1.) The Sleeping stage

The sleeping stage is also known as the Resting stage is when the three lines (moving averages) intertwine with each other. At this point, the mouth of the alligator is closing signifying the sleeping stage due to an overfeeding period. As I mentioned, the Sleeping stage signifies a weak or no trend in the market.

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• 2.) The Awakening stage

The awakening stage is when the three lines start moving away from each other like an open mouth of an alligator to feed. An awake stage can be a start of a bullish or bearish trend.

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• 3.) The feeding stage

The feeding stage is the trend period, which covers the distance moving averages. This stage can be an upward or a downward trend and the mouth of the alligator stays open between two resting stages.

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Feeding will always end in a sleeping stage which will later move to an awakening stage in any direction depending on the market.

4.) Based on the layout of its three moving averages that make up the Alligator indicator, how can one predict whether the trend will be bullish or bearish (Screenshot required)

Like I mentioned above, the alligator can be used to pick trends either for bullish or bearish direction in the market. The moving averages(lines) create a new trend on the awakening stage which can be used to predict the trend in any direction.

• 1.) Anticipate a Bullish trend

When the awakening stage starts and moving averages start given some distance between each other, and the green lines move on top of the other signified a bullish trend. when the market is in the bullish trend, that also means the alligator is feeding in the upward direction.

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During the bullish trend, the blue line move to the bottom of all the moving averages, meaning the red stay in the middle be

• 2.) Anticipate as Bearish trend

When the awakening stage starts and the blue lines move on top of the other signified a bearish trend. When the market is in a bearish trend, that also means the alligator is feeding in the downward direction.

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During the bearish trend, the green line move to the bottom of all the moving averages, meaning the red stay in the middle be

Note that be it in the bullish or bearish trend the red line stays in the middle making the moving average unused during anticipations in the market.

5.) Explain how the Alligator indicator is also used to understand sell/buy signals, by analyzing its different movements.(screenshot required)

The act of buying and selling is the duty of the traders in the market. Traders make use of the strategy to know when to buy and when to sell to make a profit and minimize loss. The Alligator is just one of the tools used by a trader to either enter or exit a market.

• a.) Entry(Buy) signal

From the analysis, I give above anticipating a bullish trend is a masterpiece to look at when waiting to get into a market. Traders love to buy at a low point, to make a profit high. The best signal to buy is when the alligator is awaking from its sleeping stage in an upward direction. Another point pick to anticipate is the green line, as the green line moves above the other moving averages. The market is in a possible upward trend and the best moment to buy.

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• b.) Exit(Sell) signal

To anticipate a bearish trend is the master when a trader wants to take profit and get out of the trade. Traders love to sell at a high point, to take back profit. The best signal to sell is when the alligator is awaking from its sleeping stage in a downward direction. Another point to anticipate is the green line, as the green line moves below the other moving averages and the blue line above. The market is in a possible downward trend and the best moment to sell and exit the market.

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6.) Do you see the effectiveness of using the Alligator indicator in the scalping trading style? Explain this based on a clear example.(Screenshot required)

Scalping trading is all about short-term trading with a good number of entry and exit points. This strategy is about making a small profit in the market. With alligator indicators, it is easy to effectively practice Scalping trading to pick entry and exit points in the market.

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The example on the chart shows the different possible buying and exit points in the market using the alligator indicator.

7.) Is it necessary to add another indicator in order for the indicator to work better as a filter and help get rid of unnecessary and false signals? Use a graph to support your answer.

From the previous course we learned that it is advisable to trade with more than one indicator, this avoids the risk of false signals and minimizes loss in trading. Alligator is not different from other indicators, so it is okay to add another indicator to boost your trading decision and reduce the chance of falling into false signals.

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In the chart above I added an RSI indicator to compare the trading signals to conclude on the decision to take. From the chart, when the RSI moves above 70 ratings, putting the market in a bullish trend. the green line was above the other moving averages indicating a bullish trend in the market.

8.) List the advantages and disadvantages of the Alligator indicator:

Advantages

• Alligator indicator is not complicated to interpret following the movement of the color lines (moving averages) making the indicator very friendly for beginners

• Alligator indicators give more accurate signals because of the number of moving averages applied to the indicator.

• Alligator indicator can be used to identify the different market states, that is flat, trend, and end of the flat

• Alligator indicators can be useful to identify resistance and support levels in the market.

Disadvantages

• It can not be used alone, you need to add other indicators to make a profitable trade.

• The inconvenience of setting parameters for different timeframes for the different moving averages.

• High probability of false signals when the default signals are customized.

9.) Conclusion

From every indication, the William alligator indicator has more advantages than disadvantages. The alligator is a straightforward indicator that beginners can trade with. well to make more profit, it is advisable to add other indicators to avoid false signals. Alligator has an advantage over others as a trader can identify trends, flats and the flat end was price movement changes in the market. Like I mentioned above, the flaw is the aspect of adjusting parameters for each time frame individually. It's best advice to use the default setting which will give a lot of signals for scalping trading style. thanks, Prof @Kouba01 for this course on another indicator.