Alligator’s strategy in Options trading

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The “Alligator” is a very interesting indicator of market direction and periods of no trend. Its main goal is to determine the trend direction and its strength.

Why do we need it?

  • Defines the trend.
  • Defines the entry points.

The main function of the Alligator is to determine the trends: whether it’s the bullish (buyers) or the bearish (sellers) dominating the market, which means that the indicator can be used for the trending periods in the market.

How to use it?

  1. Select the ‘Alligator’ indicator from the list of indicators.Alligator's strategy in binary option trading 1
  2. Without changing the settings, click ‘Apply’Alligator's strategy in binary option trading 2
  3. The indicator was reflected in your chart and is ready to use.

How does it work?

The mechanisms are pretty simple – the indicator represents a combination of three smooth Moving Averages indicating different time periods and moves. It is important that the Moving Averages are smooth rather than simple or belong to any other type: they minimize the impact of the market noise and minor market fluctuations on the chart. Bill Williams called these Moving Averages the Balance Lines, as they show the price that would prevail in the market when no other factors intervene.

Each Moving Average received its own name:

  • Alligator’s Jaw
  • Alligator’s Teeth
  • Alligator’s Lips

The Alligator strategy

  1. Apply the Alligator indicator to the chart. You will see 3 lines of the Alligator’s “jaw”.
  2. The moment when the indicator lines are intertwined indicates that the Alligator is asleep. The longer it sleeps, the hungrier it becomes. This is a waiting period when the trading activity is inadvisable..
  3. Once the Alligator wakes up it begins to “yawn”, thus opening its “jaw.” This is the right moment for entering the market.
    • Opening the jaws up signals further growth and buying the call option.
    • Opening the jaws down signals further decline and buying the put option.
  4. Having eaten enough, the Alligator starts to lose its interest in “food” and the indicator lines are intertwined again. This sends a signal to end the trade and wait for the next signal.Alligator's strategy in binary option trading 3

Advanced usage

Important notice: Like any other method of technical analysis, the Alligator indicator may show delayed signals. False signals may also occur; therefore the Alligator requires maximum optimization, according to certain market conditions and certain assets.

  • After selecting the Alligator indicator, you will see the settings page.
Alligator's strategy in binary option trading 4
  • On increasing the number of periods, the Alligator becomes optimized for a more volatile market. The indicator will provide fewer, yet more accurate signals.
  • On decreasing the number of periods, the Alligator becomes optimized for the trending market. The indicator will provide more signals, but the accuracy will depend on the trend strength.

The most widely used Alligator settings:

A volatile market or asset :

Alligator's strategy in binary option trading 5
Alligator's strategy in binary option trading 6

Trending market or asset:

Alligator's strategy in binary option trading 7
Alligator's strategy in binary option trading 8

This educational material is courtesy of IQoption broker. Find out more here.
General Risk Warning: The financial services provided by this website carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose

PLEASE NOTE: The articles on this website are not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.

Some of the articles have been created by Artificial Intelligence for marketing purposes. Not all of them has been reviewed by humans so these articles may contain misinformation and grammar errors. However, these errors are not intended and we try to use only relevant keywords so the articles are informative and should be close to the truth. It’s recommended that you always double-check the information from official pages or other sources.

Some of the links on this page may be an affiliate links. This means if you click on the link and purchase the item, I will receive an affiliate commission.

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PLEASE NOTE: The articles on this website are not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.

Some of the articles have been created by Artificial Intelligence for marketing purposes. Not all of them has been reviewed by humans so these articles may contain misinformation and grammar errors. However, these errors are not intended and we try to use only relevant keywords so the articles are informative and should be close to the truth. It’s recommended that you always double-check the information from official pages or other sources.

Some of the links on this page may be an affiliate links. This means if you click on the link and purchase the item, I will receive an affiliate commission.