What's up, everybody? All right? So today we're going to talk about day trading terminology and the term of the day today is the Alligator indicator. Now this is kind of a funny name. the alligator indicator is as much an indicator as it is a metaphor. So I'm going to walk you through how to use this indicator where it came from, how it works, how to set it up on your chart, and and you know you'll see if you get some use out of it.

I Personally don't use it on a day-to-day basis. I've used it in the past I Don't find it to be incredibly helpful, but it is a cool indicator that you can put on your charts. I've got it right here on this chart. and this right here is giving a buy indicator at 9:47 just before it squeezed up from 3:40 all the way up to 480.

So it's important to know how to use this. and you know this right here certainly would have paid for itself. All right, although of course it's a free indicator. You can just put it on your charts with moving averages so it'll pay for the time it takes you to learn about it.

All right? So the Alligator indicator Now this was created in the 1990s. It was released I Believe in 1995 by the legendary trader. Bill Williams All right now, many of you guys may have heard of him. He's got a lot of technical indicators out.

a lot of them are on thinkorswim Ameritrade He's got some oscillators, different special moving averages, and stuff like that. He's a pretty well-known trader and the alligator indicator was designed to give very simple buy and sell alerts. really simple to help traders see momentum and to know when to be in trades and when to not be in them. And it was originally designed for use in Forex, where it would only be used on commonly traded currency pairs.

So you know with trading, you can apply this to really any stock. although I personally only find it helpful on stocks that have high relative volume. So stocks like some you know, indices or ETFs those types of things for me, just don't really seem to respond well to the alligator indicator, and neither do stocks that have really low volume. Now, at the same time, my whole trading strategy is based on trading stocks with high volume, so I may be a little bit biased there, but I still think it works better on those types of stocks.

all right now. the alligator indicator formula alligator indicator formula is pretty simple. It's three moving averages and that's it. So the first moving average right here are the alligators lips and they're green and it's a five simple moving average, the second moving average or the alligators teeth and they're red.

It's because he's been eating and that's an eight simple moving average and the third moving average is the alligator's jaw which is blue because as jaws kind of right below the waterline and that's a 13 simple moving Average All right. So these three lines that we see on charts represent the alligator and it's really designed to help us understand directions. So we talked about the alligator is either sleeping or as being hungry and eating. He's doing one or the other now.

I'll show you a bunch of examples of what that looks like, All right. So the traits of the alligator: They are numerous. If the three lines, the three moving averages are all crossed together. If they're all intertwined, then the alligator is sleeping, his mouth is closed, he's taking a nap.

But as the alligator sleeps, he gets hungry and hungrier by the minute. Now, if he's been sleeping for a long time, and then he starts to open his mouth. Which will be when the green line crosses up through the blue and the red line, Then he's going to wake from his slumber and he's going to eat. This is when the trend takes shape.

So when the alligator wakes up, he's hungry and he starts eating. Once he's eaten, then he goes back to sleep. And that's when the lines will become twisted again. So you don't want to be trading a stock when the alligator is sleeping, You only want to be trading when he's eating.

And you know that he's going to be the hungriest when he first wakes up from a long period of sleeping. So that's a stock that's been consolidating for a long time and is now finally starting to break out and squeeze to the upside. Now, this is also designed to help keep traders in trades longer because traders should hold positions until that green line crosses back down below the red line. That's when the alligator has stopped eating right? But as long as he's eating, those lines will be all open and they'll be kind of like a ribbon.

You'll have the blue line, then the red line, then the green line. All right. So this is an example. here.

During this period, the lines were crossed all right. So this is when the alligator was sleeping and then as the green line crossed up above the red line. Right now, the alligator is awaking from the slumber. So as you see this curling up as this breaks out, now, his mouth is open.

So during this whole point, this is his jaw open. He's eating, eating, eating, eating, and then right here. he stops eating right at this point here when this green line crosses below the red line. Now, you guys know that I'm a big fan of keeping my chart simple and moving averages are about as simple as it gets and I keep those on all my charts.

So in that sense, I Like the alligator indicator because it's a very simple way of understanding trend by using moving averages. Now, a lot of traders who use the alligator indicator use it in combination with an oscillating indicator Like what you see right here, this is the MACD The moving Average Convergence Divergence indicator MACD For short and this these here are stochastics. Both of these oscillate and can help you understand trend Now moving averages as they as this opens up. these are moving averages that are spreading apart and that happens when stocks are moving moving up very quickly.

Now, when they start to move back down, as was the case right here, they start to cross. And so obviously this is almost projecting exactly what's happening with the moving averages. So these two are sort of redundant, whereas stochastics is not as redundant because it's it's not based on moving averages. This may be something that you find helpful.

I Don't like using either of these on a day to day basis. So I Just keep my charts simple and use just the moving averages. But for traders who are using the Alligator indicator, it may be helpful to have an oscillator on here. whether it's stochastic or CCI the Commodity Channel Index.

You know those types of things might help give you a little bit of a better sense of the context. Alright, but in this trade here, your entry would have been right here. Now this entry makes sense because it's the first 5-minute candle to make a new high. So it already makes sense based on my strategy.

And now you have confirmation from the moving average as it's crossing over. the only thing that's different is that this tells you not to sell until the Green Line crosses which would be right here. And that's a move from about Nine Nine Seventy or no, sorry, Nine Nine Forty Five Nine Fifty all the way up to Ten Twenty. And of course you got to move up to a high at Ten Forty.

and then it pulled back and that's kind of the risk with any indicators that it lags a little bit. By the time this moving average is crossing. we have already pulled back a little bit. Now, we didn't pull back as far as here, but we have pulled back a bit.

This is not used when this crosses. That does not mean it's a short, it just means that the alligator is getting ready to sleep and he he could sleep for a while and we could just go sideways. This happened to break down, but it's not indicative of a short position That should be taken all right. Here's another example.

This right here is the initial break. This long period of sleeping like the lines are all twisted right and you can see. Same with the MACD So I'll twist together and then we start to break out. We break out here and stochastics, you know, are showing.

We're kind of trending up, trending up. and even though we cross a little bit here, we do cross. So we dip down here. and then we get a second entry here.

and I Suppose in this case, you would say that you know the stochastic s-- are still strong. They're not dipping down you're not having. When you have a divergence where one indicator gives a positive and the other ones giving a negative, it can be an indicator that the trend is shifting or that there is some. You know, some some type of struggle happening between the buyers and the sellers.

That's also true when you have a big breakout and the price moves way up, but it's on light volume. We like to see that these things are correlated and connected. When they're disconnected, it can often be indicative of a fake-out But in this case we have the move up, a little sideways consolidation and then another move up. and now this sideways consolidation just kind of barely dips down.

But we stay pretty much above our moving average there at the Green Line and then it opens up again. it dips down, opens up again. so each one of these could be considered you know, entries and either holding kind of with the loose stop or getting out and then getting back in. Once we get up here at the very top and the lines crossed all the way through through the blue one, now we know that the trend has really changed directions.

Okay, so at this point we would definitely be out of our final position and you can trade this a lot of different ways. Traders who are you know more aggressive are going to get in and get out and get in and get out. That's kind of what I would do. Traders who are a little more conservative, just kind of want to get in, hold the position, let it work.

They could get in early when we first get the break and then use a trailing stop and essentially be holding this most likely all the way until here. They might get stopped out during one of these pull backs, but for the most part this was a pretty strong setup and it was just continuing to grind higher. And that's the idea with the the indicator that it keeps you in strong trades longer and it helps you see the big picture. The big picture is that this is still a strong stock.

although you recognize when you start to get up here the alligator is still eating, but he's a pretty long ways away from his period of sleeping and it's always best to be in just after he wakes up. You almost always know this case. we kind of have increasing volume as you can see here, higher, higher, higher, higher, and then finally peaking volume at the top. Now this of course is an example of a stock that breaks out and then almost immediately the lines start to cross and I use this example because I had traders asking me right around here like in this area if I should buy the stock for a bottom bounce I don't like it for a bottom bounce because I look for stocks that are really extended to the downside that have had you know five to ten consecutive red candles before I look to get in.

but you know, despite that, the alligator indicator on this particular setup would say no. this is definitely not a period that you want to be buying. this is actually the ribbon is clearly reversed. So this is actually a short.

And this is one of those times where you could consider this a short because they're not twisted. they're upside down. so he's now diving under the water to get something to eat. So until it starts to cross here, he's not sleeping and now during this period he's sleeping.

so he's sure potentially out of this long consolidation it could start to open up to go back up, you know. But that wasn't the case. All right, And here's another set up. this one.

Almost. You know. as soon as the bell rang you, we knew that we were going to have a positive signal just because the stock was opening slightly higher. so we opened higher.

We have the positive signal. we're consolidating. We get in here around 850 60 or 874 the first 5-minute candle to make a new high, which is a setup that makes sense opening range, breakout stop. it's at the low and now with this one, we can ride this momentum all the way up.

The alligators eating. He's eating, he's eating and he doesn't stop eating until right here. Again though, the only problem is if you wait to exit until you get the actual indicator. Well, at that point you've had multiple red candles.

So I think the takeaway here is to try to remember. you know is the momentum still strong? Is this indicator still giving us a buy signal? If it is, then try to hold that piece a little bit longer. maybe until the first red candle which would be like right here and then at that point you could say okay, I've had a pretty good trade from 850 to 950. I'm going to stop out and maybe I'll get back in if we get another setup like you saw on some of those other trades.

Alright, so and now this is an example just from today, which was a pretty good one. This stock cool was a gapper. Now when the market opened we actually dipped down and you know we dip down. not out of a period of sleeping, just kind of a gap.

Dip down and then boom it starts to spike up well. I Got in this right here. The high was of this candle was 3:30 and I Bought right at this line here on this green candle and notice that that's almost exactly where that green line surged through surge through there. So I bought there and then we have a pullback and then I got back in right here at 348 and notice what happened there at 348, this green line surging through again.

Now the thing I did wrong on this trade is that I sold my whole position in the 80s I sold it here and then I had to get back in up here. So using the alligator indicator I might have been able to stay in this a little bit longer and certainly I would have done better holding the whole position from 348 even if I have a smaller position I could have made more money by holding this longer. So this kind of can help traders get out of the habit of scalping. I'm always in the habit of taking quick profits I Get in.

I'm looking for the quick breakout, take my profit, adjust my stop to break-even and that works really well for me, but at the same time sometimes there are setups you know, like this one or some of the others that you just saw that run for 10, 20, 30, 40, 50 percent and you sold the whole thing when it was up only ten percent and there really wasn't any good exit indicator other than your first profit target hit. you know if you set a profit target of $100 should you just walk away and let it run to the point where it could have been up a thousand or 2,000 or 3,000 It's important to try to keep a little bit of a peace in there. and so you know, even for me I work on doing that, selling half and holding the rest for the bigger move. It's hard and especially on the weak like this, which has been a little bit slow.

I'm more inclined to take all of my profit when I actually have profit, but you know if I can work towards holding some of these positions a little bit longer. this went up from 348 all the way to 484. I mean that's a really big move and on that move, I could have made certainly a lot more money than I made just in this 30 cents here. So I all basically a point too soon and you know that's that's kind of the benefit of this indicator and especially with traders who were trading Forex and who were trading.

you know currency pairs you want to get in and hold as long as you can because there when you're only trading a couple of different pairs, you may not have good setups every single day. You may have only have one or two good setups each week, and that means you really have to capitalize on them. As day traders, we're kind of spoiled because there are good setups almost every single day. Some weeks are better than others, but we know if we kind of miss manage one trade, there'll be another one right around the corner.

And maybe that doesn't force us to be as disciplined. But I think if we can get in the habit of holding the winners longer with a trailing stop that we could see our winners get larger and then we can start to be in the position of having you know bigger and bigger winners. which means better and better profit loss ratios. And that means that essentially you have big winners and small losers.

now. Having worked with a lot of students over the years, so many traders come. to me with the exact opposite: they've got big losers and small winners. It's because they sell the whole position too soon when it's a winner, but when it's a loser, you know they hold the whole thing through these big pull backs.

Alright, so anyways I hope this has been helpful and that you guys will now know what the alligator indicator is and how it works. If you have any questions I'd love to have you guys give me feedback and comments down below and I'll be sure to answer them. Alright, thanks guys! Let's be honest. if you made it this far, you must have really enjoyed that video.

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