Binary Options With Bill Williams Indicators – The Alligator
Introducing the Alligator
The Alligator is a trend indicator which was introduced and developed by American trader, Bill Williams. This indicator is usually being offered within the standard settings of every trading platform, including MetaTrader or Jforex. These platforms can be found online for free.
The Alligator is a quite interesting indicator since it looks like a group of various moving averages and it requires for the interpretation to be as such.
Nevertheless, instead of various moving averages, like MA20, 50 and others, here we have the alligator´s jaws, teeth and also lips.
How to Use the Alligator Indicator In Trading
The main idea which is presented behind the indicator is the one which in case the price is trending the lips of the alligator represented by the green line should be the initial point that should be added to a position in the same direction as the main trend. In case the teeth and jaws of the alligator are broken the trend should be observed as reversed or about to be reversed.
Consequently, after a bullish trend, as long as the price is not going below the jaws of the alligator, we should look for call options to buy. Similarly, in a bearish trend, we should look for put options to buy. Nevertheless, it is important to say that the expiration date depends a lot on the time frame that the indicator is being used.
It is not surprising that the Alligator indicator is among the most popular indicators which were developed by Bill Williams and that is also one of the reasons why every trading platform is supporting it.
Since it is applied directly to the chart, this is a trend indicator. Therefore it is not an oscillator which says a lot about the way of trading it can offer.
If you use MetaTrader trading platform, you should look for this option in the upper menu under the tab “Insert.” Then you should choose group “Indicators” which will open a window with some default indicators that MetaTrader offers together with Trend, Oscillators, Volumes, Bill Williams as well as Custom indicators. When you select the Bill Williams category, our option, the Alligator will appear second on the list.
When you click on it, the window will open which includes the setups as well as characteristics of the three different periods of the Alligator indicator. You will see jaws, teeth, and lips. Actually, they represent moving averages which are calculated differently than the regular moving averages.
The MetaTrader trading platform also allows the option to choose what kind of method should be compiled, and it does it in a way that all the three parts which are mentioned previously can be calculated – no matter if they are smoothed, simple, or exponential, or under a linear weighted average.
You can choose from various colours for each of the three averages. However, the standard default scheme is blue for jaws, red for teeth and green for lips. Once you click the OK button, the indicator will appear on the screen, right over prices.
Identifying a Strong Trend
In case the price is above all three averages it will define a strong trend. Furthermore, not touching any of the three with the “perfect order” and when they are placed on top of each other, can prevent crosses to happen.
It is necessary to point out that in a bullish trend you should be looking to buy the dips in support levels. On the other hand, you should buy call options in support levels, since in a bearish trend put options will be bought in resistance.
With the help of Alligator indicator, the support or resistance will be given by price testing of one of the averages previously mentioned. The bigger average creates, the stronger support and resistance area. This means that the support and resistance are obviously more difficult to break in case the price goes all the way to the blue average or the jaws.
There is a strategy for trading binary options which should be the first option to choose, and it concerns the time frame and trader´s expectations. For instance, on a four hours chart, despite the financial product which is traded, it is suggested that the amount which should be invested needs to to be divided into three different parts. Therefore, if the trend is bearish and three of these averages are trending, one put options should be traded at case price reaches one of the averages. Expiration date in that time frame can go between the end of the week and even end of the month. Moreover, this does not necessarily mean that the trader should remain until the end of the week for those options to expire.
For example, if the trade occurs on a Thursday it means that the expiration date is only a couple of days or less. The same applies to the end of month expiration as well.
Applying Money Management
This way we can use money management and also stay disciplined since trends have a corrective wave, despite their nature. The main idea is trading call or put options at the time when these corrections are happening, since rarely the second, or the fourth wave in an impulsive move is exceeding the three averages.
Everything you would like to know about applying the indicator as well as trading binary options based on it, you can find on videos that follow this project.
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