Let me introduce you to the trading strategy resting on the Alligator indicator. The article on Alligator and Fractals by Bill Williams will give insight about the indicator. Therefore, I suggest that we should not expand on this matter here. So let’s consider the rules of a market entry. Judging by the headline, we are going to trade in the four-hour time frame. This time frame is chosen not by chance as market noise comes to naught in longer time frames and the number of false entries diminishes notably.
Rules of opening positions
A long position is opened after a price crosses the Alligator’s line and afterwards a bar closes above this line. Stop loss is placed at the bottom of a signal candlestick. We take profit when we see a counter signal or when a trailing stop triggers. We should place a trailing stop at one of the Alligator’s lines.
The rules of opening short positions are the same in principle as described above. In case we buy short, we open a trade in the opposite direction, so signal bars are different. Therefore, we open short positions when the price crosses an Alligator’s line from top to bottom and later a bar closes below this line.
As you notice I didn’t indicate which of the Alligator’s lines should be used in trading. Everything depends on your preferences. The green line (lips) is recommended for aggressive trading. The red line (teeth) is appropriate for moderate trading. The blue line (jaw) suits conservative trading. Bear in mind that if you prefer a conservative approach, you should enter the market later, which diminishes the number of losing trades. Besides, it is possible to practice a mixed approach. For example, you could enter a market when the Alligator’s lips are connected and use the blue line for setting a trailing stop.
Be open to experiments and choose the strategy that suits your needs the most.
Trade at a profit!