Before we discuss the indicator, let us understand an important concept.
Before we discuss the indicator, let us understand an important concept.
![](https://pbs.twimg.com/media/E1671-PUcAQ3V33.png)
Moving average at bar B is moving average price of bar A (5 candles behind). This is shifting of moving average price. What does it mean?
![](https://pbs.twimg.com/media/E1676PoVUAUJE8W.png)
https://t.co/WkNxKU9n8u
Let us discuss the Alligator indicator.
Thread:- How Ichimoku indicator is calculated. pic.twitter.com/pM7AZvJjMj
— Prashant Shah (@Prashantshah267) April 15, 2020
Williams suggested Fib numbers 13, 8 and 5 period averages.
The averages are calculated on median price.
Median price = (High + low) / 2.
So, there are three lines plotted on the chart.
13-period MA is shifted by 8 bars
8-period MA is shifted by 5 bars
5-period MA is shifted by 3 bars
So, default parameters of Alligator indicator are 13,8,5 and 8,5,3.
![](https://pbs.twimg.com/media/E168fDWVkAMagr3.png)
The 13-period MA to 8 (13,8) is called as Alligator’s Jaws.
8-period MA to 5, the Teeth and
5-period MA to 3, the Lips.
![](https://pbs.twimg.com/media/E168wwaUYAIy47t.png)
When three lines are close to each other, the Alligator is sleeping.
If the Lips crosses the Teeth and Jaws upward or downward, the Alligator is waking up.
If Price crosses above or below the three lines, the Alligator is eating.
![](https://pbs.twimg.com/media/E169JzXUYAYR_bh.png)
When three lines are close to each other, there is no clear trend.
When short-term average crosses other two upward or downward, the trend might emerge.
When three lines are trending, and price is above them, then it indicates strong uptrend.
Over a period, market trends roughly 20% – 30% times, it remains in a range rest of the time.
If Alligator sleeps more (long consolidation), it will become hungrier and eat more (Strong trend).
There are two important observations on this indicator which I found useful:
2 – Price low is above three averages and all averages are rising = Strong up trend. Price high is below averages and all averages are falling = strong downtrend.
These readings are also possible using other indicators and charts. Idea was to talk about the concept.
![](https://pbs.twimg.com/media/E169siYUYAsXb8H.jpg)
More from Prashant Shah
More from Stockslearnings
4 factors to measure the performance of a trading system:
1 - Accuracy
There is no such thing as 90% Accuracy without compromising on other factors (like profit factor, etc)
Fact - A good trading system will have only 35-60% accuracy without compromising other factors.
(1/n)
2 - Profit Factor (PF)
It is similar to risk-reward. It is derived using the below formula:
Profit Factor = Total Profit by winning trades / Total loss by losing trades
Fact - A trading system above 1.2 PF is good if it scores well with other factors.
(2/n)
3 - Maximum Drawdown
The maximum drawdown also plays a vital role psychologically while picking a trading system.
Fact - Maximum Drawdown in any trading system should not exceed 20%. I suggest picking only the techniques which have less than 10% maximum drawdown.
(3/n)
4 - Maximum Consecutive Losers
We all feel bad even if we lose only Rs.1,000 in a trade. Because it is not only about the money, it is emotionally difficult to accept the failure.
Fact - A good trading system will have less than 15 consecutive losing trades.
(4/n)
TRADE LIKE CRAZY
10 Profitable Intraday Trading Systems, which are backtested against 10-years of Banknifty Historical Data!
(n/n)
https://t.co/BuUie17Ish
1 - Accuracy
There is no such thing as 90% Accuracy without compromising on other factors (like profit factor, etc)
Fact - A good trading system will have only 35-60% accuracy without compromising other factors.
(1/n)
2 - Profit Factor (PF)
It is similar to risk-reward. It is derived using the below formula:
Profit Factor = Total Profit by winning trades / Total loss by losing trades
Fact - A trading system above 1.2 PF is good if it scores well with other factors.
(2/n)
3 - Maximum Drawdown
The maximum drawdown also plays a vital role psychologically while picking a trading system.
Fact - Maximum Drawdown in any trading system should not exceed 20%. I suggest picking only the techniques which have less than 10% maximum drawdown.
(3/n)
4 - Maximum Consecutive Losers
We all feel bad even if we lose only Rs.1,000 in a trade. Because it is not only about the money, it is emotionally difficult to accept the failure.
Fact - A good trading system will have less than 15 consecutive losing trades.
(4/n)
TRADE LIKE CRAZY
10 Profitable Intraday Trading Systems, which are backtested against 10-years of Banknifty Historical Data!
(n/n)
https://t.co/BuUie17Ish
![](https://pbs.twimg.com/media/E9PcVgjVgAoyrrB.png)
#Freetip
Today's move is an example of this tweet. Save this chart for future ref. https://t.co/amUhSLrET3
Today's move is an example of this tweet. Save this chart for future ref. https://t.co/amUhSLrET3
![](https://pbs.twimg.com/media/E4_H5zlX0AQfueh.png)
#FreeTip
— HMK alias MANOJ (@scorpiomanojFRM) June 23, 2021
A general rule to assess if a market is ranging is to look at developing TC and / or developing BC. If either of them is flat, it means market is currently ranging. If you are trading in 5 min, go to a lower tf chart, say, 2 min to have a less lagging assessment.