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Now, let us figure out how to use this strategy and when to open positions. As long as this is a trend strategy, it does not give any signals in flats. However, this is going to be even helpful. Our task is to catch the moment when the Alligator is in a flat sleeping and the three MAs are intertwining. Meanwhile, Fractals will form both above and below the Alligator. The strategy initially includes the principle that some time after a flat or consolidation of the price a mighty trend movement happens, and the price starts growing or declining.
This is the purpose of the strategy - catching a large directed movement, or a trend. Then wait for the price to start moving in either direction so that the Alligator begins to wake up the MAs start moving in the direction of the trend.
Keep a close eye on the last two Fractals: they will show us the entry point to the trade. In the picture below, we may see that the Alligator is waking up and starting to move upwards. The line called Lips crosses the Teeth and Jaws from below. The last fractal let us call it "valid" formed at the top marked as 2 shows the entry point to the trade.
A breakaway of the high of the valid fractal will signal to enter the market. The perfect moment is when the current price broke away the high and the candlestick closed above the fractal. Then place a Stop Loss: for this, use the last downward fractal marked 1 in the picture.
As we see, the level for the SL is the nearest low. There is a flat in the market. The Alligator lines intertwine, and Fractals form above and below the MAs. After the flat, the market starts moving downwards, the Alligator wakes up and opens its mouth. The green Lips line crosses the Teeth and Jaw from above. Wait for the price to break away the low of the last valid Fractal looking down and the price to close. Then open a selling position with an SL behind the last upward Fractal marked 1 in the picture.
Then wait for the trading situation to develop. Regardless of being simple, the strategy has certain peculiarities that must not be ignored. The use on short timeframes M1, M5 gives a lot of false signals. Optimal charts for trading are M30, H1, and sometimes H4.
If you comply with all the rules of entering a trade by this strategy, you can enter the trade at the very birth of a trend and gather almost all the momentum as your profit. Open Trading Account. Has been in Forex since , also trades in the stock market. Regularly participates in RoboForex webinars meant for clients with any level of experience.
Timofey Zuev. Maksim Artemov. Hi, thanks for the feedback! But in my opinion, for traders who are taking their first steps in the market and have little experience in trading, it is better to use higher timeframes M30 and H1. Thus, there will be time for a decision without a lot of emotional stress.
For more experienced traders, this trading strategy can be successfully applied at small timeframes M5 and M Meanwhile, as you have noticed, this is a trend strategy and gives false signals in range. This must be kept in mind when trading.
Antal Varga. Very good analysis, Maks. Stay away from bracket markets. Finally, for the 1 min chart, I have to agree with you. It becomes highly polluted, I would avoid any decision based on that timeframe. It is high time to look around while there are not much statistics around.
The pair can be traded by fundamental or tech analysis and with the help of indicators. This article explains what NFTs are and shares a Top 5 list of companies connected to non-fungible tokens. This new exchange market week will be full of statistics. Investors will keep analysing global economies and geopolitics. There are still too many emotions in quotes.
The article describes the way of combining the EMA and Awesome Oscillator on H1, peculiarities of this medium-term trading strategy, and money management rules. Every week, we will send you useful information from the world of finance and investing. We never spam! Check our Security Policy to know more. Try Free Demo. The Fractals and Alligator indicators: the base of the strategy This strategy is based on two indicators designed by Bill Williams and included in most trading terminals by default: Fractals Alligator Fractals indicator settings The Fractals indicator looks like an arrow above a Japanese candlestick or a bar and points at the price extreme.
For a Fractal to appear, the following conditions are necessary: The highs of the two first candlesticks are increasing. The high of the third candlestick is higher than those of the preceding two candlesticks. The highs of the fourth and fifth candlesticks are decreasing gradually.
Also, read about Scaling in and Scaling out in Forex. Mr Williams developed a unique theory by combining the Chaos Theory with trading psychology. Along with the effects they have on the market movement. Bill William's vast knowledge of stocks, commodities, foreign exchange markets, led him to develop many indicators, including fractal trading patterns.
Each indicator has a specific value. They are great to trade with if you understand the basic concepts of each one. His market view was: in order for you to make money trading, you must be able to understand that basic market structure. You must be aware of the market's internal parts, which he called dimensions.
I could go on for quite a while about Bill Williams. But the important part to note about all of this is that his analysis and perspective of the market were different. These powerful indicators are not outdated, as some claim. They work very well when you apply the right strategy.
His indicators come standard on most trading platforms. These indicators will most likely be under his name, "Bill Williams," or "Williams" indicators. Well, These are simply arrows that are on top or below the candles on the chart. These fractals are formed when five repeated bars align in a distinct manner. You need the fifth bar to close to discover the highest high or lowest low. We will go more into detail about this indicator and show you how to use the alligator indicator.
You can find the fractal indicator on mt4 or other popular trading platforms. There is no need to have to run a fractal indicator download because it will already be there for you. This indicator consists of 3 specific moving averages. We will go more into this indicator in a bit. Each of these lines has a specific name. This is because we will reference them later on in the strategy.
We developed a strategy called the Big Three Trading Strategy that uses three specific moving averages as well if you wanted to check that out later. As you can see above, those are all 5 of Bill Williams' powerful indicators that come standard on your trading platform. I do like each of these 5 indicators, but after extensive research and testing putting together, the alligator and fractal indicator not only was the easiest way to trade with his indicators but are extremely powerful with the right strategy.
As stated above, a fractal formation is built by five consecutive candlesticks where:. To the left and to the right of the middle candlesticks we have two other candlesticks. The basic fractal trading strategy is very simple. On most trading platforms the fractal arrows that appear above the price action are green and it signals the potential of a swing high being developing. Conversely, fractal arrows that appear below the price action are red. The red arrow signals the potential of a swing low being developing or an important price level being created.
With these trading principles, we have developed a Bill Williams trading system that can signal low risk entry points. The First step you are going to want to do is, of course, throw these important indicators on your charts. As I have said, they do come standard on every trading platform that I am aware of so this should be very simple for you to do.
The fractals indicate a bottom or a top. The basic fractal indicator is composed of a very minimum of 5 bars. So when you see a fractal here is what may have happened for it to appear:. Above are the unique alligator indicator lines on the chart. Now you need to be aware of where the fractals are being placed on the candles for this strategy concerning this special indicator. I drew a yellow circle on this specific up fractal.
What is happening here is that the fractal forms a new high to the previous fractal and therefore made an up fractal appear on the candles. In order to go to step 2 for a BUY trade , the fractal must show an up fractal and be appearing above the alligator teeth.
More often than not when a fractal appears like the one above, the price action is still "flat". This means there has not been a real breakout in the recent timeframe. You can also trade with the breakout triangle strategy. The reason this strategy has to wait for at least five consecutive candles is that this is the time where either there is a pullback that is forming, a reversal may be forming, or the price action is still consolidating in a flat market. Any one of those does not sound pleasant if you are looking for a big upward bullish move to form on the chart.
As you can see, the price action stayed quiet and did not move up or down drastically these five candles. That is exactly what you should see when trading this strategy. Before we look any further into this strategy, here is what will make the strategy "reset" and invalidate a future trade BUY entry. Once you see that five consecutive candles did not make a drastic move to the downside and stay in between the high of the fractal candle and the alligator teeth, then we go ahead and make an entry order.
You can make an entry this way, or if you are sitting in front of your charts live with this occurs, then you can make a market order also. Either one is ok to do because the same criteria are needed. As you can see, I marked where our original fractal was discovered. What happened after was that there were five or more candles that appeared that did not drift down to the alligator teeth, the alligator lines did not cross, and the price action finally broke above the fractal candle thus triggering a trade.
This most likely means the alligator is going back to sleep and the price action will either head the other way or consolidate. Check out my other article here that talks about these important areas. This will give you the best opportunity to salvage a trade if the price action would turn on you and turn into a bearish trend.
It may "bounce" off these areas and head back in a bullish direction. These basic fractal trading techniques should lead you in the right direction if you have been searching for a great strategy to use with these indicators. There are many different strategies you can use with these indicators, but in our experience, we like this combination of the Bill Williams indicators. Many argue that every indicator is "lagging" and rarely show you profitable entries.
The Fractal Trading Strategy uses the combination of price action analysis that complements these great indicators. So if you are one of the sceptics, give this strategy a try and let us know your results. We love hearing your guys' feedback! If you aren't a believer in an indicator-based strategy, check out our price action pin bar strategy.
Identify major trend direction on a daily chart. Use a 1-hour chart to identify entry and exit points into the market. Entry signals on the 1-hour time frame must only be considered if they align with the trend deduced from the daily chart.