Blockchain and Cryptocurrency Advanced - Using Another Indicator With the Alligator Indicator

Why It Is Necessary to Add Another Indicator in Order for The Indicator to Work Better as A Filter and Help Get Rid of Unnecessary and False Signals

As far as technical indicators are concerned, there are no perfect technical indicator. Every indicator has weaknesses and as such provides false signals. The Alligator indicator is no exception and even though it is a very powerful and effective indicator in identifying trends and providing buy and sell signals, it is also known to provide false signals as well. That is why it is advisable to always make use of the Alligator indicator in combination with another technical indicator to filter out false signals. The Alligator indicator can be combined with the MACD indicator for signal confirmation and filtering false signals.

For buy signal confirmation with combination with the MACD indicator, when a buy signal is generated by the Alligator indicator, the MACD indicator can confirm this signal by position of the MACD line and signal line in relation to the zero line. When the MACD line crosses above the signal line and is rising above the zero line, it is a strong indication of a possible uptrend move or bullish trend.

For sell signal confirmation with combination with the MACD indicator, when a sell signal is generated by the Alligator indicator, the MACD indicator can confirm this signal. When the MACD line crosses below the signal line and is falling below the zero line, it is a strong indication of a possible downtrend or bearish trend.

For false signal filtration, when the Alligator indicator has provided a buy signal but the MACD indicator is still moving below the zero line, it can mean that the market is still bearish. With this, the trader can avoid going long or taking a buy position.

The advantages and disadvantages of the Alligator indicator

Advantages

• The Alligator indicator is a really easy and simple indicator to make use of when it comes to identifying trends in the market.

• Because it is based on moving averages, the false signals are minimal

• It is an effective indicator that can provide very good buy and sell signals. However, combining it with another indicator like MACD, ADX indicator or other strategies can provide more quality buy and sell signals.

• The Alligator indicator gives traders the freedom to use it on any timeframe on the chart.

• The Alligator indicator has proven to be a very effective indicator for scalping trading

• The use of relatable terms like the Jaws, Teeth, Lips, Alligator sleeping, Alligator awakening and Alligator eating makes it one of the easiest indicators to learn and understand especially for beginners.

Disadvantages

• Even though the Alligator indicator provides good signals, it is also known to provide false signals.

• The lagging nature of the indicator makes it provide late signals

• When the market doesn’t have a clear direction or is consolidating, the Alligator indicator is less effective

The Alligator indicator is without a doubt one of the top technical indicators that is used by a lot of traders for trend identification. Aside the indicator being very powerful and effective in providing buy and sell signals in the market, it is also very easy and simple to understand and use, this makes the indicator very popular among a lot of traders. Finally, even though it is a very effective indicator in identifying trends and providing buy and sell signals, it is also known to provide false signals as well. That is why it is advisable to always make use of the Alligator indicator in combination with another technical indicator like MACD to filter out false signals.