The Bill Williams’ Alligator binary options’ indicator helps a trader to determine the time of the new trend’s formation and shows what direction the trend will have. Its lines can be either parallel with each other on a chart, if the movement is stable, or interlace between each other, if there is the sideways movement in the market. This indicator is pretty easy in calculation and usage. It consists of three moving averages, which have independent periods and displacement coefficient.
The Bill Williams’ Alligator binary options’ indicator consists of three lines each of which has its own name. The first one and the long one is called the Alligator’s Jaw. The second one has a shorter period and is called the Alligator’s Teeth. The third one and the short one is the Alligator’s lips. This auxiliary tool can inform on a force of the rising trend, but in order to do this, it is better to use the other binary options’ indicators which measure the volatility in the market.
The Bill Williams’ Alligator binary options’ indicator can show the strength of the trend and prepare a trader for the opening of a deal, as well as show the trend itself and time of its rise. It’s necessary to remember that the Call binary options’ purchase is possible when the indicator’s lines reverse up. And the Put binary options’ purchase is possible when the indicator reverses down. But this binary options’ indicator has its own disadvantages because it is based on the moving averages. This auxiliary tool can either send the false signals or lag.
Bill Williams’ Alligator indicator: basics
The Bill Williams’ binary options’ indicator was created by the famous trader and named after him. The indicator is based on the fact that markets stay in the sideways movement for a pretty long time. In other words, there are the certain bounds, in which the price oscillations occur. As for the price movement outside of the trading range, in other words, the trend movements, they are quite rare in the market and take only up to 20% from the entire time of trading.
The Bill Williams’ binary options’ indicator is fairly interesting because of its approach. In other words, it helps to find points in time when a market switches from the sideways movement to the stable trend. This indicator includes three smoothed moving averages (these moving averages have period of 13.8 and 5 by default). All these moving averages are displaced for 8, 5, and 3 respectively. Instead of plotting based on the closing prices, these lines are based on the average price. The creator of this Alligator binary options’ indicator Bill Williams has also invented names for each of the used moving averages.
The longest moving average is the Alligator’s Jaw. It has the period of 13 and the displacement of 8. This moving average shows the price levels, which can be achieved by the market if it won’t be influenced by the new events. It is possible to say that this line shows the long-term trends in the market. The developer of this binary options’ indicator Bill Williams calls it the Balance line. When a price stays above this line, the market will continue to grow and react positively to the new events. But if a price is located below the Balance line, the market will perceive any new information negatively and will continue its descending movement.
It is necessary to note that all other moving averages show the same, but for shorter periods. The author of this Alligator indicator Bill Williams has described these lines in his own way. If the interlacing of lines occurs on a chart, it means that the Alligator indicator stays in the sleep state. But the longer the Alligator sleeps, the stronger hunger it will have when it awakes. This situation has its own rational kernel which is perfectly consistent with the main ideas of the technical analysis. Usually, a long sideways movement is followed by the strong market trend. Interlacement of lines of the Bill Williams’ Alligator binary options indicator means that the time of consolidation in the market is occurring.
The author explains that when the Alligator awakes after the continuous sleep, it shows the strong market movement. In terms of the technical analysis, such movement breaks the previous trade range in one of the directions. After the Alligator’s craving is satisfied, the slack period comes again and the Alligator falls asleep.
Bill Williams’ indicator: peculiarities
As already mentioned in the first part of the article, the binary options’ indicator consists of three moving averages with different periods and displacement coefficients. In order to calculate the indicator, the average value is used instead of the closing price.
The first moving average is called the Alligator’s Jaw. This line is the balance line which has the period of 13 and is displaced with the coefficient of 8 on the binary options’ chart. This line has a blue color on many charts.
The second moving average applied on a chart is the Alligator’s Teeth. It plots for the shorter period of time. This line has the period of 8 and is displaced with the coefficient of 5. Usually, this line has a red color.
The last one moving average is called the Alligator’s lips. This line is the shortest one and plots with the period of 5. This moving average of the Bill Williams’ Alligator binary options’ indicator has the coefficient of 3 bars. Usually, it has a green color.
The Bill Williams’ Alligator binary options’ indicator can be used to determine the strength of the market’s movement, which is starting to form. The strength of the future trend can be determined by the calculation of a time during which the market stayed in the sideways movement (in other words, for how long the binary options’ indicator’s lines were interlaced between each other). The longer the sideways movement was, the stronger the trend movement will be. But it’s necessary to mention that using the binary options’ indicator for the determination of the trend’s strength is not the best idea. There are many volatility indicators, and they can provide more reliable information on this matter. For example, you may use the Standard deviation binary options’ indicator to do this. In addition, in order to determine the forming trend you can use the Bollinger Bands binary options’ indicator.
Before the indicator sends a signal to buy the binary options, described by us in the third section of this auxiliary tool’s description, it sends signals informing a trader on the necessity to prepare to enter into the market. The expansion of distance between lines of the Bill Williams’ Alligator binary options indicator can be such signal. Specialists recommend using this time as the best time to analyze a market carefully. The expansion of the Alligator’s lines can show that a trend will arise in the market soon. The direction of this trend can be determined by the fractal which appears on a chart. As soon as the fractal appears, a trader can get ready to buy a binary option.
Bill Williams’ Alligator indicator: application
The Alligator binary options’ indicator can send both preliminary and final signals to buy binary options. Now we will consider the last type of trading signals. So, when the movement up starts in the market, the lines of this auxiliary tool start moving up and break the fractal. You can buy the Call binary option, when the fractal or the area slightly above it is broken. However, the fractal has to be located above all lines of the indicator.
On the other hand, when the binary options’ indicator’s lines reverse down, the possibility of the development of the descending movement arises. In this case, it’s necessary to wait until the lower fractal is broken. And it is desirable that the prices are located higher than this fractal. You can buy the Put option when the fractal’s breakout occurs.
The Bill William’s Alligator binary options’ indicator can be also used in order to determine the trend movement in the market. For this, it is needed to pay attention to the standing of the Jaws indicator’s line that has the period of 13 (the longest one). If it is located far from the price candles and, at the same time, the line with the period of 8 is located between lines with 13 and 5 periods, and the line with the period of 5 is located very close to the price chart, then the trend’s formation begins in the market. When the moving averages begin to cross the prices, then the directional movement ends.
It is recommended to buy the Call options when the indicator reverses all of its moving averages upwards. This means that the ascending movement is forming in the market. It’s necessary to remember that this indicator can be used on the different time scales. For this reason, it is needed to pay attention to the options’ expiration time. For example, if the short-term trend is forming on the minor time scales, the expiration time has to be minimal too.
Purchase of the Put option is recommended when the Bill Williams’ Alligator binary options’ lines are directed down. It shows that the descending trend is starting to form in the market.
It’s necessary to mention that this binary options’ indicator is the basic indicator for many other indicators. For example, Gator, Awesome, and Oscillator Accelerator can be referred to this category.
However, the Bill Williams’ Alligator binary options’ indicator has its own disadvantages, as many other auxiliary tools. These disadvantages are related to the fact that this indicator is based on the moving averages. And it is well-known that the moving averages can send either smoothed and lag signals or many false signals. For this reason, the Bill William’s binary options’ indicator can be used together with other auxiliary tools, for example, with the trend indicators.