Introduced by Bill Williams in 1995, the Alligator Indicator consists of three lines. Traders use this indicator to determine the trend direction. As the name suggests, it gets its name from the ferocious reptilian animal found in North America. The three lines represent the jaw, teeth, and lips. It's best used in conjunction with other indicators, which you can easily get with IQ Option. These lines are also known as moving averages. Williams called them balance lines. If you haven't got the platform yet, you can download it right away for your Android or Apple mobile device.

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How to interpret the alligator

So, let's say you have downloaded the platform, and have added the Alligator. Now what ? We need to look for two scenarios, well actually, 3.

The first one we need to watch out for is when the Alligator is 'sleeping'. This is one where the majority of traders don't bother opening a trade. It's the consolidation period of the asset(s). How does one identify this ? Look at the image below.

When the three lines are intertwined, as shown, the Alligator is said to be sleeping.

As the Alligator continues sleeping, there will reach a point where hunger begins to set in, and he will slowly open his mouth to eat. When this happens, the lines begin to spread out (this can happen either in a downward direction (bearish) or upward (bullish). Once the Alligator is full, it closes its mouth (intertwined once again).

Therefore, the Alligator can be used to determine three situations, namely;

  1. The formation of a trend

  2. The direction of a trend

  3. Absence of a trend

Alligator Balance lines

As was previously mentioned, the creator of the Alligator, Bill Williams, named the three lines the 'balance lines'.

The first one represents the jaws, the second the teeth, and thirdly, the lips. When you are installing it in IQ Option, you will see something like this. N.B. You can change the colours to suit your preference.

So, how do we use the Alligator balance lines to determine the different trends ? Well, the 3rd one has already been discussed, and is the easiest to figure out. For the formation of a trend, we need to look at the faster green line (lips) crossing the other two slower ones, and the red and blue lines following the green line in whatever direction it's facing. The final thing to look for is all three of them spreading apart !

The trend direction is fairly easy to spot, and is a no-brainer. If the balance lines are facing upwards, then that's the direction. Conversely, if they face downward, then it's a bearish trend.

The problem with the Alligator is the difficulty in determining when to enter a trade. It lags the start of a trend.

Tips on using Alligator

There are a few things to look out for when using the Alligator. Obviously we want to catch a trend, but how do we know when it's not a false alarm ? It's vital to look at the Alligator sleeping phase compared to the 'eating' phase that came before it. If the period it was sleeping is much shorter, then don't expect the trend to change. If it has been sleeping for longer than the preceding phase where it's eating, we can assume a likely profitable trend.

As with any forex trading indicator, it's best to use the Alligator in conjunction with another indicator, and the best one is known as the MACD. The reason for this is that the MACD can warn you whether it's a false alarm or not. To learn how to use the MACD, click here.

Another great indicator to use with the Alligator is the ADX, as it can show you the trend strength. Read up on it here.

RISK WARNING: YOUR CAPITAL MIGHT BE AT RISK

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