The “Profitunity” strategy based on the Alligator indicator
One of the most common profitable trading techniques is trades with the highest potential – positive mathematical expectation. Today, trend trading is the most common way to make a profit. One of the most famous and effective trend-following strategies is “Profitunity”, developed by Bill Williams.
It is based on the Alligator – a system created on the basis of knowledge in the field of chaos science, quantum physics, information theory, cybernetics, fractal geometry. This is a compass for executing transactions in a given direction, regardless of the direction of price changes at the moment.
The alligator used in the “Profitunity” strategy is a trend tracking indicator that allows you to get into a trend or stay out of the market when a flat is formed.
The alligator is a reading of 3 lines:
· Blue line or “jaw” – is the line of balance of the existing period of time. It is a 13 period smoothed moving average that is shifted forward 8 bars.
· The red line or “teeth” is the balance line for the previous significant time period. The moving average has a period of 8 and is shifted 5 bars forward.
· The green line or “lips” is the middle line with a smaller period of 5 and is shifted only 2 bars forward.
Opening positions on the Alligator
There are 2 market conditions. When the lines are intertwined, the market is in a trendless state (the Alligator in this case is “sleeping”). If the market stays in a narrow price range for longer and longer, the more powerful the subsequent trend will be.
When a trend appears on the market, the lines line up in the direction of the trend (ie the Alligator “opens its mouth”). In an uptrend, the lines go up, in a downtrend, they go down. That is, the Alligator is “hungry”, the longer it sleeps, the higher (lower) the price movement will occur.
The indicator is used to determine the state of the market. If the Alligator “sleeps”, then we remain outside the market. When the Alligator “opens its mouth” – open positions.