Bill Williams Indicators in Binary Options Trading and the Gator Oscillator
For starters, the gator oscillator is a repainting oscillator. Many of you might wonder what that exactly means. It simply means that data given under the chart change according to current and future price action. That further implies that making a trading decision based on what the oscillator indicates is fine, whereby back-testing should be avoided, hence it is misleading giving only wrong and incorrect data that should not be used.
Still, back-testing can be used under other circumstances, like for example when using the Alligator indicator which is not repainting, but a trend indicator. The bottom line is that back-testing can be used if the trader is looking to confirm an Alligator side.
How Does the Indicator Blend in with Binary Options Trading?
The indicator fits in perfectly with binary options and can actually give great signals on future price action. When the Gator oscillator shows the same color of its positive and negative part, then, it is time to look for a trend. Traders should follow the movement of the oscillator, i.e. follow the direction of the Alligator. If the Alligator is to the upside, place call options, and if the Alligator is heading downwards, put options should be traded.
The Gator and Alligator oscillator share certain similarities, and for a detailed explanation and thorough overview of the Alligator tool and its purpose in binary options trading, simply go the Alligator educational project that is also featured here on Binary Options Education.
Some of the best-known trading platforms come with the oscillator, so for example, the MetaTrader 4, as the biggest platform, features the oscillator under the Insert button. Once you found the Bill Williams indicators, you will be presented with a popup window that reads Gator Oscillator. When you click on it, you will be presented with the same outlay of variables as with the Alligator Oscillator, e.g. teeth, lips, and jaws with the default period of 13, 8, and 5 for each of the variables (teeth, jaws, lips). With the Gator oscillator the default periods are similar but not the same, as they will read 8, 5, and 3 which will indicate if the projected candles on the chart will be the same color in the end, or will they take on different colors.
The standard colors that are featured are either green or red, depending on whether there is a bullish or bearish price trend. Once the indicator is taken to the chart, you will notice that it moves between positive and negative values, whereby the zero level will be implicitly displayed. The oscillator and the candles on ti can assume different colors, so, for example, a candle can be semi-green and semi-red, or it can take on just one of the colors.
The Gator oscillator as a tool has also the ability to represent the volatility index in a very simple manner. Namely, the market‘s volatility increases with the rising distance of the candles from level zero. This information can be used as an advantage when trading options since it widens the perspective and numerous options can be traded on the basis of the volatility level the market undergoes.
Let us illustrate it with the following example:
If the Gator oscillator levels roam for a longer period near the zero level, it clearly indicates that the ranges appear on the chart, which further means that One Touch options should be traded rather than the most common type High/Low options. If you want to trade High/Low still, the option is not completely excluded, but it requires a different oscillator. Good advice would be tracking down divergence patterns or bullish and bearish reverse trends together with a separate oscillator when the market is oversold or overbought.
If we have the situation that the candles in the Gator oscillator are moving away from the zero level, that means that market volatility is very strong at that point, and it would be a good idea to trade options with longer expiry periods, since it indicates that an impulsive move is on its way, but it could also be a zigzag pattern.
There are traders who use the different colors in one candle as an indicator to trade call or put options, but such a strategy is very speculative, and there is no proof that it actually works.
A safe strategy, after all, is to trade call options when the candles are filled with green and when volatility is high. And, when the candles are completely red, whereby volatility is also high, it is the right timing to trade put options.
Looking for the Ideal Striking Price
To find the ideal striking price, you should examine past movements and identify the distances of the oscillators when the markets are active in order to correct the indicator as to portray two lines at the given levels. These levels represent the guidelines for price actions. Trading put options is recommended when the line above zero is touched but only under the condition that the first candle is red and plotted by the Gator oscillator.
When dealing with the opposite, simply do the opposite. Trade call option when the plotted Gator oscillator candle is completely green and when the oscillator is moving downwards to the lower levels on the chart. Such a movement also indicates that volatility is high.
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