MACD and Alligator Strategy: Complete Guide For Traders

The MACD and Alligator Strategy provide a complete overview of the asset market, enabling informed decision-making. Discover how to use it with pros & cons.

Alligator is a rare yet powerful technical analysis indicator for trading. And when we combine Alligator with the moving averages convergence divergence indicator, the strategy further improves.

In our Indicator Interpretation series, today, we will learn about the Alligator trading indicator and how to use the MACD and the Alligator strategy collectively. So let’s get started.

What is the Alligator Indicator?

Alligator is a technical analysis indicator developed by Bill Williams, a popular trader. It forms an alligator-like structure on the chart with a jaw, teeth, and lips.

The expressions of Alligator keep changing with the changing of market conditions. Each expression gives an indication of the asset’s future price movement.

You can analyze the trend, potential for price movement, trade entry, and exit points using the strategy. Also, you can combine the MACD and alligator indicator for gold, stock, forex, and crypto trading.

Key Components of Alligator Trading Strategy

Jaw: Alligator’s jaw is represented by the Blue line. It’s a 13-period smoothed moving average, 8 bars ahead of the current price.

Teeth: Teeth are represented by the red line in the MACD and the alligator strategy chart. It’s an 8-period smoothed moving average, five bars ahead of the current price.

Lips: Lips are represented by the green line. It’s a 5-period smoothed moving average, 3 bars ahead of the current price.

How to Interpret the Alligator Indicator

For interpreting the Alligator indicator, you need to watch the movements of the Alligator. Here is how:

Sleeping Alligator: When the three lines are experiencing repeating crossovers due to the choppy market conditions, it is defined as an alligator sleeping. It occurs during low volatility and indecision in the market. During this period, you should avoid taking any position.

Awakening Alligator: The alligator is awake when the lip line crosses above the teeth and mouth. It indicates a period of significant volatility; the prices are expected to rise, indicating potential for bullish moves.

Alligator Eating: When three lines of the indicator are stretched apart and move higher, the condition is called the alligator eating with a wide mouth. It suggests that the trend is well established. During such a scenario, you should place a trade in the direction of the prevailing trend.

Alligator Closing Mouth: It’s when the jaw, lips, and teeth come closer and the mouth closes. It indicates that the trend is weakening, and it may end.

How to combine MACD and Alligator Strategy

The alligator indicator’s success rate depends on how effectively you use the indicator. For the best alligator indicator settings, you can combine it with the moving average convergence divergence. Here is how:

Understand MACD:

First, get well-versed with the moving average convergence divergence indicator. MACD is a momentum indicator that provides valuable information about the current trend. It contains the MACD line, signal line, and a histogram. Every crossover or breakout suggests a potential move.

Identify the Asset:

You can use the MACD and Alligator strategy for stocks, crypto, or forex trading. Once you have selected the trading instrument, open the chart, select the time frame, and plot the indicators on it.

Interpret the Alligator Indicator:

In the alligator indicator, if the lip crosses above, the teeth and jaw give bullish signals, and if the lip crosses below, the teeth and jaw give bearish signals. So, analyze what the Alligator expressions are saying.

Confirm with MACD:

Now, for confirmation purposes, use the MACD indicator. If the MACD lines move above the signal line, it confirms the bullish trend, and if the MACD lines move below the signal line, it confirms the bearish trend. Confirm the Alligator indicator finding with MACD. If both the indicators tell the same story, you can go ahead with placing trades.

Advantages of MACD and Alligator Strategy

Comprehensive Analysis: Using a single indicator for interpreting the financial market may generate false signals. When you combine two indicators, it provides an in-depth analysis, and the overall accuracy increases.

Diversity: You can use MACD and the Alligator strategy for crypto, forex, stock, or index trading. Also, the MACD and Alligator long-term trading strategy. However, you can even use it for a shorter time frame. The MACD and Alligator scalping strategy is also quite popular amongst traders.

Trend Identification: The Forex MACD and Alligator strategy works well in identifying trends, continuations, and reversals. And the trend is a trader’s friend. You can analyze the trend and make the trade decision accordingly.

Disadvantages of MACD and Alligator Strategy

Performance Dependency: The indicator’s performance entirely depends on the market conditions. In highly volatile and choppy market conditions, the indicators lose their effectiveness. And in such cases, the indicator also generates false signals.

Ignore Broad Market Overview: The strategy only considers technical analysis aspects for interpretations. However, an asset price movement is also affected by fundamental and sentimental factors. Focusing solely on technical analysis is not a great idea.

Bottom Line

The MACD and Alligator strategy combination provides a comprehensive analysis of the trading instrument. You can identify short-term, medium-term, or long-term trading opportunities. The style is suitable for trading diverse assets with diverse market conditions.

The strategy has many benefits, but use it with proper confirmation for positive results. If you are new, first practice the strategy on a demo account. Beirman Capital’s trading accounts are ideal for all types of trading strategies. Open an account with us and master diverse trading methods with ease.

FAQ-

1. What is the best combination with MACD?

Combining the Alligator indicator with the MACD is undoubtedly the best strategy.

2. What is the best indicator to use with the alligator?

Moving average convergence divergence is the best indicator to combine with the alligator.

3. Is there a 100% winning strategy in forex?

No, there is no 100% winning strategy in forex. The forex market is based on probability; thus, the chances of winning and failure are all there.

4. Which indicator is better than MACD?

The Relative Strength Index, Bollinger Bands, and Fibonnachi are indicators that work better than MACD.

5. Which is the Best time frame for the Alligator indicator?

The best time frame for the Alligator indicator depends on your strategy, profit, and risk criteria. The strategy works for all short-term, medium-term, and long-term time frames.