› Alligator Indicator Binary Options Strategy - How It Works

Alligator Indicator Binary Options Strategy - How It Works

If binary options trading is easy like Sunday morning, we could shorten the way to success into three steps as follows: determine the trends, trade the signals, and sit back! Unfortunately, defining tradable market trends seems a difficult task for traders at the best of times. This article will focus on a popular trend-spotting strategy based on the famous Williams Alligator Indicator which was developed by the legendary trader Bill Williams, an early pioneer of market psychology.

What is a Williams Alligator Indicator?


The Alligator, so-called Williams Alligator, is a special trend-seeking indicator using three smoothed moving averages (SMA) which are constructed with separate time periods to highlight long-term, mid-term and short-term trader’s actions. When the asset prices trade above the triple SMA, a bullish trend is present. Conversely, a bearish trend is confirmed when the asset prices remain below these triplets. To increase the number of reliable trading signals, traders should change the settings of the Alligator into 26, 14, 6 periods instead of using the preset of 13, 8, 5 which is very hypersensitive with market performance.
Bill Williams introduced the Alligator indicator in 1995. The Alligator is as much a metaphor as it is an indicator.

Alligator Indicator Settings


Binary options market is notably volatile, therefore, besides using a lagging indicator to determine market trends, traders should also apply a leading technique to confirm whether the trading opportunities are trustworthy or not. In this case, Relative Strength Index (RSI) - a very popular and effective indicator invented by the professional technical analyst Welles Wilder, widely used to estimate market momentum - could be considered a perfect candidate. By using the RSI along with the Alligator indicator, traders can track out more reliable trends and trading opportunities.

If you like this strategy, you might also be interested in this Triple Bottom Pattern

How to use the Bill Williams Alligator & RSI


This system works best on 5-minute, 15-minute, and 1-hour charts. Binary options traders can add the needed indicators in Finmax’s advanced charts.
Call signals: In an uptrend, when prices pull back and hit the nearest-term SMA but tend to rebound, and the RSI line is above 60, a bullish signal is confirmed.
Put signals: In a downtrend, when prices rally and approach the nearest-term SMA but tend to rebound, and the RSI line is below 40, a putting signal is valid.

Alligator Indicator Binary Options Strategy - How It Works


There are some important entering rules as follows:
  • In an uptrend, only bullish signals should be traded, and vice versa with a downtrend;
  • If the RSI line turns above 85, the uptrend is considered over. Conversely, if the RSI line crosses below 15, the downtrend should be ignored;
  • Too much crossover between the SMA suggests that market condition is choppy. Trading in this period is unsafe;
  • The expiry time should be set five times larger than the chart period. For example, traders could set the finishing time to be 25 minutes when trading on the 5-minute chart.

Pros and cons of the system


Besides generating more accurate trading signals by strick entering requirements, this system also allows traders to identify short-term trends and profit from scalping the market. However, constantly observing the charts is a must when using this strategy.

Conclusion


Defining the market trends has never been a simple task for traders, especially the beginners. Howbeit, reading this article carefully and applying the combination of the RSI and the Bill Williams Alligator Indicator precisely could make the trend spotting work become easier. In any case, don’t forget that there is no system which could guarantee for a 100% win-rate. To profit from binary options market in long-term, money controlling and psychological managing methods should never be skipped.


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