You have probably heard about Alligator, indicator which is used by top crypto traders. This powerful tool can increase performance of every cryptocurrency trading strategy and help you to make money on the market. Alligator gives us the precise answer if now price is in impulsive or reactive wave. This knowledge is very useful in building your own crypto trading strategies or even in automated trading bot strategies. Even if you use grid bot strategy Alligator can increase your return on investment because it’s vital to set up grid bot in reactive wave and sideways movements. What is the beast Alligator, let’s have a deep dive into this topic today!
What is Alligator?
Alligator is the best indicator for trend detection. It consist of three moving averages which are called jaw, teeth and lips. Moving averages are frequently used in algorithmic trading bots. They can be exponential, smoothed or weighted depending on particular crypto trading algorithm, but we will use smoothed moving averages (SMA).
- Jaw (blue line) – 13 period SMA shifted 8 bars is the future. This is the balance lie of the current time frame, for example 1D
- Teeth (red line) – 8 period SMA shifted 5 bars in the future. This is balance line of lower degree time frame, for example 4h
- Lips (green line) – 5 period SMA shifted 3 bars in the future. This is balance line of two times lower degree time frame, for example 1h
Please, be careful when you use Alligator on different cryptocurrency trading platforms. Check the correct settings and moving average type. On TradingView it’s correct, don’t worry!
Trend detection with Alligator
The main Alligator’s feature is the detection the trending markets and markets which are about to explode in any side. This powerful tool can enhance your crypto trading algorithm if you use it in the correct way. On the ATOM price chart you can see the example of an Alligator. As you can see it has two conditions: sleeping and hungry.
- Sleeping Alligator is when all lines are crossing each other and the price. This period of time can takes up to 80% of time. This is the market cycle stage where you shall avoid any trading and be prepared for the trending market
- Hungry Alligator is when after a long period of consolidation price chose the trend direction. It’s an impulsive move. Alligator’s mouth is widely opened and do not crosses the price.
It’s very important to distinguish the trending market because only this type of a market gives you opportunity for the fast and huge profit. Otherwise, in the range bounded market you don’t have enough space for price to make profit for you. Most of stop losses occur while Alligator is sleeping. Another one very useful hint for you. If you use Elliott waves analysis. You don’t need to understand in which wave market is now. You just jump into the impulses and avoid corrections.
How to trade with Alligator
Here is the most interesting part. How to start crypto trading using Alligator? Our basic strategy is to wait when the price will create the first fractal above the Alligator’s mouth and place conditional order to buy one tick above the fractal’s top. We will discuss fractals in details next time. Now you have to understand how to use Alligator.
Another one hint from our experience is to use fractals only when Alligator has been sleeping for a long time, like you see on the BTC chart. After long sleep and fractal breakout Bitcoin showed the greatest bull run in the history.
Let’s notice where we should close trade. Almost at the top! When price started showing weakness we don’t need to be in the market anymore. Using this strategy on 1W time frame you can hold assets during entire bull run and sell then before bear market. Fantastic! Isn’t it?
Conclusion
In this article we discussed how you can implement Alligator indicator in your trading routine. This indicator will help you to avoid boring market when you can only lose money and catch every big move. Moreover you can use even sideways market detection if you use cryptocurrency trading bot which earns money in range bounded market. For sure this in not the only one strategy using Alligator. Next time we enhance our approach with other tools and see in details how Alligator improve their profitability. Moreover, soon we will live stream where practice trading with Alligator. See you next time!
Best regards,
Skyrex Team
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