Alligator & Fractals Strategy
A clean, rule‑based trend strategy that combines Bill Williams’ Alligator with classic Fractals. It works best on H1–H4 for liquid FX pairs (EURUSD, GBPUSD, XAUUSD). Volatility filters and strict risk control are mandatory.
Tools
- Alligator (default settings): Jaw 13/8, Teeth 8/5, Lips 5/3 (SMMA, applied to Median Price).
- Fractals (standard).
- Optional: ATR(14) for dynamic stops/position sizing.
Market logic
- When the three Alligator lines are compressed and intertwined, the market is “sleeping” (range).
- When the lines spread and align (Lips above Teeth above Jaw for buys; reverse for sells), the Alligator “wakes up” — a nascent trend.
- Fractals mark the most recent swing high/low that price must break to confirm momentum.
Entry rules
- Wait for a sleeping Alligator — lines are close and flat for a while.
- Place stop orders at the last fractal after the wake‑up:
- Buy Stop a few points above the last up fractal if Lips>Teeth>Jaw and sloping up.
- Sell Stop a few points below the last down fractal if Lips<Teeth<Jaw and sloping down.
- Cancel the opposite order once one side triggers.
Stop Loss
- Conservative: beyond the opposite fractal (plus spread).
- Alternative: ATR(14) × 1.5–2.0 from entry.
Choose one method and keep it consistent.
Take Profit
Pick one of the following and do not mix them on the same account:
- R‑multiple: TP = 2R or 3R (risk‑to‑reward 1:2 or 1:3).
- Structure: trail to the Lips; exit on opposite fractal break.
- Time‑based (for intraday H1): close at the end of the session if trailing did not hit.
Trade management (recommended)
- After entry, move SL to breakeven once price closes beyond the Lips by one candle.
- Trail behind the Teeth in trends; tighten to Lips when momentum accelerates.
- Avoid signals against higher‑timeframe direction (check H4 or D1).
Risk and filters
- Risk ≤ 1% per trade, max 3 concurrent positions per pair.
- Filter out low‑liquidity hours; prefer London/NY overlap.
- Skip entries if major news (rate decisions, CPI, NFP) are due within the next hour.
Notes
- The method is simple but disciplined execution matters more than the indicator.
- Backtest on your broker’s data and forward‑test on demo before going live.