Trading Strategy 18 – Alligator and ADX

Time Frame: Recommended for 4 hours, Daily and Weekly (more precise signals)
Currency Pairs: All but recommended high volatility pairs
Indicators: Alligator (Jaws :50-8, Teeth: 25-5, Lips :12-3) and ADX (14)

The Alligator will help us determine whether a trend is taking place or has been confirmed. The Alligator consists of three lines called Jaws (blue), Teeth (red) and Lips (green). The price is in an uptrend when the price is above three lines of Alligator and for a bearish trend, the price would be below three lines of the Alligator.

Indicator ADX (Average Directional Index) indicates the current strength of the trend. This indicator has three lines: + DI (green),-DI (red) and ADX (blue). When the + DI line is above 20 the uptrend is strong, and when -DI line is above 20 the downtrend is strong. When the ADX line is below the value of 20 the current trend would lose strength, therefore, this strategy will require that the line ADX is above 20 to enter an order in the market.

SIGNAL BUY / SELL

  1. These input signals are more conservative.

Buy: purchase order will open when a candle open above the Lips line (green) of the Alligator, and the + DI line (green) of the ADX is above the value of 20 (ADX line (blue) should also be above 20).

In the chart above we see a signal of buy on the EUR / USD in time frame of 4 hours. It is seen in the graph the line + DI rises above the value of 20. It sends a purchase order when a candle opens above the Lips line, around the 1.3035 price, the price makes a bullish rally and the order is closed in the price of 1.3880. Note the –DI line, as it is located below their value of 20.

Sale: will open a sales order when a candle opens below the Lips line (green) of Alligator, and the -DI line (red) of the ADX is above the value of 20 (ADX line (blue) should also be above 20)

In the chart above we see a signal of sell on the EUR/USD in temporality of a day. We see how the -DI line of the ADX rises above the value of 20. It sends a sell order when a candle opens below Lips line, around the price of 1.2900, the price makes a bearish rally and closed by the price of 1.2450. Note the +DI line, as it falls below the value of 20.

2. These input signals are more aggressive.

Buy: purchase order will open when a candle open above the Jaws line (blue) of the Alligator, and the +DI line (green) of the ADX is above the value of 20 (ADX line (blue) should also be above 20)

Sale: will open a sales order when a candle opens below the Jaws line (blue) of the Alligator, and the –DI line (red) of the ADX is above the value of 20 (ADX line (blue) should also be above 20)

Will have more confidence in the open order when the ADX line opposite is below 10, meaning, in a purchase order, if the line – DI is below 10, the upward trend is getting stronger, giving the signal to make that run the order. When the line -DI rises above the value of 10 must be careful of a future change of trend. Otherwise it would be for an order of sale with the line + DI.

OUTPUT

You can set exit points when the lines + DI and – Di fall below the value of 20 or when price touches the Alligator lines.

 

Before initiating, you establish the amount of loss that you want to risk, your stop lost has to be established always.

Protect your profits with a Trailing Stop of a possible reversal of the market.

Successes.

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Erick Gálvez

Administrador at ASD Forex
Webmaster of ASDForex.com and trader of forex market since 2008. I'm in charge of the publication and editing of news and analysis www.asdforex.com

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