Alligator indicator trading strategy is used by traders to gauge the long and short term trends of the market/ stock of over a specific period of time. The Alligator indicator identifies the trend change by using its three constituent components. Alligator indicator trading strategy uses three components, the 13-day simple moving average (SMA), 8-day simple moving average and a 5-day simple moving average. The 13-day SMA is known as alligator jaw and is indicated by the blue line, 8-day SMA is teeth and coloured red and the 5-day SMA is known as lip and has a green coloured line. Zerodha Kite charts plot this indicator for traders.
How to set up Alligator indicator in Zerodha Kite?
- Go to MarketWatch.
- Choose the stock you are going to trade.
- Right click on the stock and select chart from graphic icons.
- Chart window of the stock opens.
- Go to studies. Select studies.
- Go to Alligator and click on it.
- A small window opens with default parameters of the indicator.
- Once the parameters are selected the Done command is chosen, the parameters window goes off the screen and the indicator is plotted on stocks price.
- The default values can be changed as per own requirement.
Alligator indicator trading strategy in intraday –
- The Alligator indicator works well in all time frames.
- The picture above shows State Bank of India (SBIN) stock price movement with respect to alligator indicator.
- The chart shows 1 min. timeframe.
- A short position is created when the green line or lip cross teeth and jaw downwards.
- The strategy shows the price trend. Understanding price trend from Alligator indicator is important before creating a position.
- The short position is closed when the green line or lip goes up and crosses the red and blue lines, that is jaw and teeth in an upward movement.
- A fresh buy position can also be created in such a scenario.
The Alligator indicator trading strategy was vastly used in the Profitunity indicators by Bill Williams. In our another post on Profitunity indicators readers can know more about this strategy. Overall this strategy is a trend following strategy and can be traded with much accuracy if one consider fractal breakouts in the same direction of the Alligator indicator trend.
Partha, an engineer by education, is theoratically actively following the stock and commodity markets since 1990. He is an active trader since 2003. He has received formal education in future and options and quantum analysis. He is presently working on research oriented projects using Python and data analytics.