Alligator Indicator: Complete Guide to Trading Binary Options
Alligator is an innovative technical analysis indicator developed by legendary trader Bill Williams. The indicator consists of three moving averages that symbolize the jaws, teeth, and lips of an alligator. For binary options traders, Alligator is a powerful tool for determining market phases and entry points into trend movements.
What is the Alligator indicator and how does it work?
Alligator consists of three balance lines shifted into the future:
Alligator's Jaw (Blue line): 13-period SMA shifted 8 bars forward
Alligator's Teeth (Red line): 8-period SMA, shifted 5 bars forward
Alligator's Lips (Green line): 5-period SMA, shifted 3 bars forward
How it works:
Alligator sleeps: Lines are intertwined - the market is flat
Alligator wakes up: Lines begin to diverge - the beginning of a trend
Alligator eats: Lines follow the jaw-teeth-lips order - a strong trend
Alligator is satiated: Lines converge - the end of the trend
Configuring Alligator in the trading platform
The standard indicator settings are optimal for most strategies:
Jaw: Period 13, Shift 8, Color Blue
Teeth: Period 8, Shift 5, Color Red
Lips: Period 5, Shift 3, Color Green
Recommended timeframes:
M1-M15 for medium-term trends
M15-H1 for long-term trends
Alligator trading signals for binary options
1. Alligator Awakening (Start of Trend):
Buy Signal: Lines diverge upward (green above red, red above blue)
Sell Signal: Lines diverge downward (green below red, red below blue)
Expiration: 2-5 minutes
2. Rollback to the Alligator's teeth:
Buy: Price rollback to the red line in an uptrend
Sell: Price rollback to the red line in a downtrend
Expiration: 1-5 minutes
3. Crossing lines:
Trend reversal: The lines cross in reverse order
End of trend: The lines begin to converge and intertwine
Practical trading strategy
Alligator Awakening Strategy:
Wait for the lines to diverge in a clear order
Wait for the price to roll back to the alligator's teeth (red line)
Enter the trade in the direction of the trend
Expiration: 2-5 minutes
Alligator Hunt Strategy:
Determine the direction of the trend by the order of the lines
Wait for a breakout of a significant level
Enter the trade when the trend is confirmed
Expiration: 1-5 minutes
Combining with other instruments
To increase the effectiveness of Alligator, use it in combination with:
Fractals - to determine breakout points
Awesome Oscillator (AO) - to confirm momentum
Support/resistance levels - to accurately determine entry points
Candlestick patterns - to determine the entry point
Risk management:
Trade size: no more than 2-3% of the deposit
Trade only when the Alligator is “awake”
Profit/risk ratio: 1:2
Conclusion
Alligator is a unique indicator that helps determine not only the direction of the trend, but also its life cycle. For binary options traders, the ability to enter the market at the very beginning of a trend movement is especially valuable. Proper use of the indicator in combination with other tools from Bill Williams' trading system can significantly increase trading efficiency.