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How to use alligator forex?

Alligator Forex is a popular trading strategy that uses three moving averages to determine the market trend and entry/exit points. The strategy is based on the metaphor of an alligator, representing the market’s behavior of sleeping (consolidation), waking up (trend formation), and attacking (price movement). In this article, we will explain how to use the Alligator Forex strategy step by step.

Step 1: Setting up the Alligator Forex indicators

To use the Alligator Forex strategy, you need to set up three moving averages on your chart. The three moving averages are:

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– The jaw (blue line): smoothed 13-period moving average, shifted 8 bars into the future

– The teeth (red line): smoothed 8-period moving average, shifted 5 bars into the future

– The lips (green line): smoothed 5-period moving average, shifted 3 bars into the future

You can easily set up these moving averages on your chart by using popular trading platforms such as MetaTrader 4 or 5. Once you have added the indicators, your chart should look something like this:

![Alligator Forex chart](https://education.howthemarketworks.com/wp-content/uploads/2019/05/alligator.png)

Step 2: Identifying the market state

The Alligator Forex strategy uses the metaphor of an alligator’s behavior to identify the market state. The three states of the market are:

– Sleeping: the market is consolidating, and the Alligator’s mouth is closed (the three lines are intertwined).
– Waking up: the market is starting to trend, and the Alligator’s mouth is opening (the green line crosses above or below the other two lines).
– Attacking: the market is moving strongly, and the Alligator’s mouth is wide open (the three lines are widely spread apart).

To identify the market state, you need to look at the relationship between the three moving averages. When the jaw, teeth, and lips are intertwined, it means that the market is sleeping, and you should avoid trading. When the green line crosses above or below the other two lines, it means that the market is waking up, and you should start looking for trading opportunities in the direction of the trend. When the three lines are widely spread apart, it means that the market is attacking, and you should continue riding the trend until the Alligator’s mouth starts to close.

Step 3: Entering a trade

Once you have identified the market state, you can enter a trade in the direction of the trend. The Alligator Forex strategy uses two types of entry signals:

– Trend continuation: when the market is attacking, and the Alligator’s mouth is wide open, you can enter a trade in the direction of the trend when the price pulls back to any of the moving averages. For example, if the trend is bullish, you can enter a long trade when the price bounces off the green line.
Trend reversal: when the market is waking up, and the Alligator’s mouth is opening, you can enter a trade in the opposite direction of the previous trend when the price breaks the middle moving average (the red line). For example, if the trend was bullish, and the price breaks below the red line, you can enter a short trade.

To manage your trade, you can use stop-loss orders and take-profit orders based on your risk-reward ratio. You can also use trailing stops to lock in profits as the trend continues.

Step 4: Exiting a trade

To exit a trade, you need to monitor the Alligator’s behavior and the price action. When the Alligator’s mouth starts to close, it means that the trend is losing momentum, and you should consider closing your trade. You can also exit a trade when the price reaches a significant support or resistance level or when your profit target is hit.

Conclusion

The Alligator Forex strategy is a simple yet effective trading strategy that can help you identify the market trend and enter/exit trades with precision. The strategy is based on the metaphor of an alligator, representing the market’s behavior of sleeping, waking up, and attacking. To use the Alligator Forex strategy, you need to set up three moving averages on your chart, identify the market state, enter a trade in the direction of the trend, and exit the trade when the Alligator’s mouth starts to close. With proper risk management and discipline, the Alligator Forex strategy can help you achieve consistent profits in the forex market.

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