Greetings Friends, it's my pleasure participating in this week's S.C.A. lectures, and I really learnt a lot. Thanks to Professor @kouba01 for such a wonderful exposure.
1. Discuss your understanding of the use of the Alligator indicator and show how it is calculated?
This is a technical Indicator that is credited to Bill Williams as one of his innovations that uses 3 smooth moving averages with different colours which helps it in confirming or signalling possible market trends. The diverse colours of the moving averages in the alligator indicator represents its lip teeth and jaw. The green colour of this indicator represents the indicator lip, likewise the red and the blue color which represents the Indicator teeth and Jaw respectively.
|Line (color)||Main Period||Offset Period||Speed|
|Green MA (Lip)||5||3||Fast|
|Red MA (Teeth)||8||5||Faster|
|Blue MA (Jaw)||13||8||Fastest|
The green moving average.
The green moving average is set within 5 periods which also has an offset of 3 periods and this is the slowest moving average of this indicator.
The red moving average.
The red moving average can be adjusted to 5 periods and possibly set for a default period of 8 and this is also the slower moving average as compared to the alligator indicator moving averages
The blue moving average.
The blue moving average can be set up to 13 periods with an offset of 8 periods. This is the fastest moving average of the alligator indicator
With the concept and pattern of Life of Alligator, Williams tries to relate his indicator to this animal that while the alligator wakes from sleep, it always opens its mouth in search of prey and the position of its prey determines the dimension it will take. So the different market reactions are demonstrated by this indicator as the indicator itself tries to show the possible strength of trend and different market scenarios at each time.
Williams believed that approximately 30% of the times the market is in trend and these notable spots are the periods where profits could be made in the market.
How To Calculate The Alligator Indicator
MEDIAN PRICE = (HIGH + LOW) / 2
ALLIGATORS JAW = SMMA (MEDIAN PRICE, 13, 8)
ALLIGATORS TEETH = SMMA (MEDIAN PRICE, 8, 5)
ALLIGATORS LIPS = SMMA (MEDIAN PRICE, 5, 3)
SMMA= Smooth Moving Average
This Smooth moving averages puts into consideration the historical data of this indicator in other words it does not neglect the previous accumulated data of the Alligator indicator.
2 Show how to add the indicator to the chart, How to configure the Alligator indicator and is it advisable to change its default settings ?. (Screenshot required)
I will be adding this indicator in the Steem crypto chart using the trading view platform.
First is to click on the Indicator icon at the top corner of the platform menu and on the provided search box, I click and search for Alligator and it pops up, finally by clicking on the Williams Alligator it automatically inserts into the Steem crypto chart.
To configure this Indicator, you have to click on the indicator setting icon attached to it and on the different popped up settings, click on inputs and here it has a jaw length of 13 with an offset of 8, teeth length of 8 with the an offset of 5, lips length of 5 with an offset of 3 although you can start with any of the settings of the Indicator.
The style setting has different colours but specifically it has the default colours of blue for the jaw, red for teeth and green for the lip.
The visibility setting of this indicator has a time frame that operates from 59 seconds to one year precisely.
Besides, I don't necessarily see any reason for changing the default settings of this indicator since it was an invention born out of real expertise and in-depth technical know-how of Williams' experience over the years. More so, the mutation of its settings may cause certain erroneous instability in its use, since there was no suggestion by Williams to make possible changes in the use of this indicator. I also suggest that it is better to use this indicator in it's default settings.
3 How do we interpret this indicator from its 3 phases: the period of rest(or sleep), awakening, and the meal phase?(Screenshot required)
The three different phases of this indicator are understandable and also simple and we can correlate this by just recalling how this animal behaves at these phases. Besides it could be interpreted thus:
Period of Rest.
The Alligator is an Animal that rests or sleeps with its belly lying flat, crossed teeth and a closed mouth and this is in relation to the composition of its body.
This period of rest in the Indicator is the period where the market is flat or in range or possibly we can relate it to be the period of price consolidation where there is no obvious trend in the market and it is better for traders not to enter any trade until there is a true trend signal by the Indicator.
In the BTC price chart above we can see that the alligator lines are closed and there is actually no obvious trend as confirmed in the price chart which is an indication of market consolidation which later plunged into a Bull trend.
We know that it is in the mentality of animals that whenever they wake up their next option is to look for food, the same applies to the alligator. When it has awoken, it opens its mouth in search of prey.
This is confirmed technically in the Indicator, that after possible price consolidation, the market culminates into a down or an uptrend being the stage the Indicator is well opened in confirmation of trend signal.
From the BTC chart above we can see the opening of the Indicator, which signalled a real Bull trend after the consolidation phase which is the sleeping period.
This period could be correlated to be the climax of the Alligator phase as it relaxes to feed on its prey. At this period there is no obvious movement by the Alligator and technically the Alligator lines are a bit closed indicating another phase of but not related to the rest phase as the rest phase is the first price consolidation the awaken phase is the opening of the indicator signalling possible price trend and the finally the meal Phase is the climax point in the indicator signalling a probable Bull or another Bear trend.
From the BTC price chart above, we can see that at the meal phase, there is an obvious slowdown in the indicator signalling probable up or down trend after meal.
4 Based on the layout of its three moving averages that make up the Alligator indicator, how can one predict whether the trend will be bullish or bearish (Screenshot required)
The 3 SMMAs are very significant to possible prediction of trend signals and for us to predict this, we have to speculate very closely at the strategic crosses Lip, Teeth and Jaw.
Now we have come to terms that after the rest stage in this indicator, we should be expecting the wake stage and subsequently the meal stage but these stages are very strategic in the Indicator.
The Lip of this indicator plays a more significant role in signalling trends and we believe that there will be no meal until the teeth and jaw is opened.
Technically from my observation, during price consolidation the SMMA'S tends to have no possible direction now after the consolidation stage, if the Lip swings and retraces from the bottom thereby creating a significant cross above the teeth and jaw, this is a bull trend signal contrarily if the Lip also swings and retraces from the top, it is a bear trend signal as it crosses the teeth and the jaw from the top.
Finally I will be illustrating this using price chart below.
Using a Bull Chart
From the BTC/USDT price chart above we can see that after accumulation or price consolidation period, the lip made a final swing above the teeth and the Jaw from bottom to confirm a bull signal
Using a Bear Chart
From the BTC/USDT chart above we can see that the crossing of the Lip from above the teeth and jaw confirms a bear trend after price consolidation at the top which I attributed as the meal stage being the climax of the Alligator pattern.
5 Explain how the Alligator indicator is also used to understand sell / buy signals, by analyzing its different movements.(screenshot required)
We know that the importance of every deployable indicator is to guide a trader in making rational choices that will lead to profitability and any Indicator that can not dictate a buy or sell signal is not worth it to be deployed. Nevertheless the Alligator indicator on its own has the firm capacity to annotate using it's SMMA's a buy or sell signal.
This indicator has the capacity to signal a buy trade and my recent analysis of the Indicator Lip which is the green moving average has a greater role to play for the indicator to either go to the bull or to the bear although I shaded a little light on this in question 4 above.
Now for a buy signal, the green moving average which is the Lip has to cut across the teeth and the Jaw which is the red and blue MA from under and swing to the top while the red MA stations at the middle and the blue MA gives them a support from the bottom and hence a buy signal is signalled.
From the BTC/USDT chart above we can observe first the crossing of the green from the bottom and swinging above the red and blue MA's to the top while the red is at the middle and finally supported by the blue MA from the bottom to confirm a buy signal.
For a sale signal to be confirmed by this indicator, certain criteria must be met and these are elucidated below: first despite the blue MA being the fastest MA in this indicator, but it may not gain a true stand as to confirm a possible trend but for a true sale signal to be confirmed, the green MA must have been above and then make a swing below the red and the blue MA's from the top and then station a supportive movement from below the red and blue MA's while the red MA stations at the middle and then the blue at the top. Once this is confirmed, a sale signal is automatically confirmed.
Using the BTC/USDT chart above, we can observe the bear confirmation as the green MA swings across the red and blue MA's to the left or support zone while the red moves along the middle with the blue MA at the top, and with this is a confirmation of a sell signal.
6 Do you see the effectiveness of using the Alligator indicator in scalping trading style? Explain this based on a clear example.(Screenshot required)
I really do see the great effect in maximizing the potential of this indicator in scalp trade.
First the concept of scalping postulates the use of seconds and minutes in entering and exiting the market at strategic points with the aim of making short term profit.
But since no substantial profit could be made in the crypto market without efficient use of buoyant indicators the trader is acquainted with, of which the Alligator indicator can also act as one, in placing profitable and favourable trades.
Nevertheless, I'll be illustrating how to use this in making short term profits using the BTC crypto chart below.
From the BTC/USDT chart above we can observe strategic points where the Indicator made obvious crosses to indicate buy and sell signals which could be used in placing short entry and exit positions.
7 Is it necessary to add another indicator in order for the indicator to work better as a filter and help get rid of unnecessary and false signals? Use a graph to support your answer.
I buy the idea that no indicator has a perfect prediction of price and if so be, there is only a little deficient in this indicator as it does not take a pre-step before the price chart as to first dictate the possible price trend before it takes place. Even to this extent, the Alligator indicator has shown it's prowess in signalling possible market trends which has also followed it's prediction.
More so from my speculations, there is no indicator that is fixed to the price chart that contradicts it's trend unless the trader in possession of the indicator miscalculated the settings based on the time frame he/she is trading with.
Although this indicator has exhibited to be more perfect than many other indicators but I suggest that the amalgamation of this indicator with the RSI will not actually filter any false signal but rather help in solidifying possible responsive trend signal made by this indicator as the RSI signals a compulsory Bear trend reversal at around 70 and above and on the other hand, it also signals a Bull trend reversal at about 30 and below and we can see this in the chart below and this could be to the advantage of traders who trades at periods of price consolidation or the rest phase.
Using the BTC/USDT chart above, we can see where the indicator made and obvious spots that correspond to the movement of the RSI which a trader can maximize and scalp profit in the market and taking a closer look, at around point 70 in the RSI, the Alligator indicator took a bull till the point of resistance and at around point 30 the Alligator indicator took a short bear till the position of support as we can see above.
8 List the advantages and disadvantages of the Alligator indicator:
|1||It does not contradict with the trend of the price chart||significant crosses must be made to confirm a real trend and this may keep a trader waiting before entering or exiting the market|
|2||It is faster than the price chart there by giving traders the opportunity of either entering or exiting the market at trend signal||The Calculation of this indicator does not have significant effect on possible future trend|
|3||obvious crosses made by the EMA's which is still the SMMA's has significant effect on price||The relative Life of a real Alligator may be misleading when applied to this indicator as a zoologist and veterinary doctors may not use the indicator when applied technically without its fur knowledge.|
|4||There is the tendency of more win than lose if this indicator is properly utilized||A beginner may not efficiently use this Indicator without a good technical know-how which makes it a bit difficult to use.|
The Alligator indicator is such an exquisite Indicator and has the potential of price possible prediction and the best of its advantage is that it moves before price confirmation and this advantage can be Capitalized by traders in placing favourable trades. Left for me with regards to the use of this indicator, I would prefer using it alone although I make use of the Art EMA Ribbon which has similar function with the Alligator indicator but just that it only uses two default colours which are red and greed in confirming trends. Thanks professor for such an exposure and I wish to stake that all pictures were taken by me from trading view.