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Thread: Alligator indicator

#Alligator #Indicators #Definedge

 Alligator indicator is created by Bill Williams. He was a popular trader and author.

Before we discuss the indicator, let us understand an important concept.
Here is a chart showing 10 day moving average at bar A. Price of the stock is 100, Moving average price is 90.
What if we shift this moving average to 5 bars further? See the chart below.

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?
Simple explanation is – shifting the moving average can help one compare current price with past period moving average easily. It results in smoothening instead of increasing the moving average parameter. This is also known as Forward Displaced moving average.
Displacing the average could be an interesting experiment. This concept is also used in many other indicators including Ichimoku cloud. Here is the link that explains Ichimoku indicator.

https://t.co/WkNxKU9n8u

Let us discuss the Alligator indicator.
First step is to plot three simple moving averages or the Triple moving average.

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.
Next step is to shift all these moving averages to future bars.

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.
Williams called it Alligator. He used the following terminology to describe these averages:

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.
Behavior of the indicator:

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.
Basically it means:

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.
When the three lines are trending, and price is below them then it indicates strong downtrend.

Over a period, market trends roughly 20% – 30% times, it remains in a range rest of the time.
We should not be trading markets when Alligator is sleeping, monitor when it is waking up and trade when it is eating.

If Alligator sleeps more (long consolidation), it will become hungrier and eat more (Strong trend).
So, basically Alligator indicator is forward displaced triple-moving average. It smoothens the averages, but it also increases the lag in the indicator.

There are two important observations on this indicator which I found useful:
1 – Three averages close to each other: there is a possibility of strong trend to emerge. Trade breakouts.

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.
Ignore other bars. With this approach, you will trade mostly clear trends.

These readings are also possible using other indicators and charts. Idea was to talk about the concept.
It can be compared with triple moving average, Alligator shifts the moving averages.

My best take from the indicator is concept of shifting the moving average to explore further, and that we can divide price in to bullish, bearish, and neutral phase using averages.
Understanding of the concept and principles behind the techniques helps a lot in the long run. We cannot use all the indicators, but we can learn the logic behind those methods that can give us more ideas or improving on what we are doing currently.

More from Prashant Shah

Prashant Shah
Prashant Shah
@Prashantshah267
Thread: 5 Important bullish & bearish chart patterns in technical analysis.

Triangles, Broadenings and Rectangles.

#trading #investing

Many traders analyse and practice western chart patterns. There are many such patterns and enough is talked about them in various books and resources.
Long back, I read a book “Encyclopedia of Chart Patterns” by Thomas N. Bukowski. It’s a brilliant work (Must read).

He backtested many patterns & ranked them based on their performance. Most imp is that he separated the patterns based on their performance in uptrend & downtrend.
I read about those patterns at many other places & in different theories and I realised that most of them are-

-variations of broad category of patterns. I have bifurcated these patterns in various categories.

Triangles, Broadenings & Brackets or Rectangle patterns are most common & effective patterns. Below are 5 bullish & bearish proven, time-tested patterns of these categories.

Bullish Patterns:
Rectangle Breakout:
Horizontal pattern breakout. Price remains between two horizontal lines before upward brkout. Its a decent continuation breakout pattern when appears in uptrend. Reversal pattern when appear in downtrend (Decent Risk-reward). Tend to pullback
ALL
Prashant Shah
Prashant Shah
@Prashantshah267
Thread: P&F Super Pattern

An effective price pattern defined using properties of P&F charts.

#Superpattern #Pointandfigure #Definedge


Point & Figure is an oldest charting method where price is plotted vertically, and the chart moves only when price moves. It is a different way of looking at the price, the objective box-value and reversal value offers advantage of identifying objective price patterns.

When price is moving up, it is plotted in a column of 'X'. When it is going down, it is plotted in a column of ‘O’. Normally, three-box reversal criteria is used to define the trend & reversal. Unlike a bar or candle, the P&F column can have multiple sessions in it.


Link to know more about the subject:
https://t.co/2xtLAVPBvm

See below chart. Price is in a strong uptrend, P&F chart would produce a long of column of 'X' with more number of boxes in it.


If such a trend is followed by some time bars without meaningful price correct, P&F chart would not move, and it will remain in column of 'X' in such a scenario.
FINANCE
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Prashant Shah
Prashant Shah
@Prashantshah267
Thread: Darvas Box Theory

#Darvas #knowledgesharing #Definedge


Nicolas Darvas (1920 – 1977) was a professional dancer and he travelled around the world. He founded a Dance company in 1950s. Someone offered him shares against his Dance programme and that is how he came across stock market and the business of trading.

He reportedly turned thousand dollars into millions in the late 1950s.

He wrote a popular book during 1960 “How I made $2000000 in Stock Market” in which he explained his Box theory. It is a must read.

He used a combination fundamental and technical approach for investing.

He believed in investing in only growth stocks. I think he did not explain a few things in his book, and I found some difference in interpretation of box-theory at various places because of that. This post is my interpretation of his theory.

Darvas was tracking stocks only making new high. I do not think he really talked about 52-week high. He mentioned about stocks breaking 2-3 year high. But 52-week high is mostly tracked for this theory so let us keep it that way to begin with for the sake of objectivity.
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Prashant Shah
Prashant Shah
@Prashantshah267
Thread: Pivot levels

Trading based on Pivot levels is one of the popular approaches. Both short-term and intraday traders track Pivot levels to identify support and resistance levels in any instrument.

Let’s discuss how these levels are calculated.


The pivot calculation method considers the previous day prices to calculate the support and resistance levels.

There are seven levels marked on the chart when we plot Pivot as a tool.

There is a Pivot level, 3 support levels (S1, S2 & S3) & 3 resistance levels (R1, R2 & R3).


We have four prices for any trading session - Open, High, Low, Close.

They give us the important information about what happened during that session. Levels is calculated using the High, Low & Closing price of the previous day. Let’s understand Pivot calculation with an example


The difference between high and low is a range of the day.

High – Low = Range
In our example, range of the session is 10 points.

105 – 95 = 10

Mid-price of the session is average of high and low price.

The Mid-price in this case would be 100.
(105 + 95) / 2.


Mid-price is average of range of the session. How about including the closing price to this calculation?

If we calculate the average of High, Low and Closing price - we get the Pivot point.

(105 + 95 + 103) = 101 is the Pivot level in our example.
ALL
Prashant Shah
Prashant Shah
@Prashantshah267
Thread: Parabolic SAR Indicator

Parabolic SAR (PSAR) indicator was developed by J. Welles Wilder.

#PSAR #Indicators #Definedge


The calculation of this indicator is a bit complex, but the concept is extremely useful. I will try to simplify it and explain the logic. I will briefly explain the concept, calculation and reading.

Let us think about creating an indicator that shows the trend.

Using the indicator, we can identify & ride the trend using the trailing stop-loss method.

For trailing the stop in uptrend, indicator needs to be placed below the candle. Similarly, it should be placed above the candle for trailing in a downtrend. We will plot it using ‘dots’.


So, the indicator & stop-loss will be rising in uptrend & falling in downtrend.

Let us define the trend as:

If Low of the candle > Stop-loss level in bull market = Trend remains bullish.

If High of the candle < Stop-loss level in bear market = Trend is bearish

Imagine you are driving a car on highway; you would like to accelerate if the road is clear. You will slow down if the road is bumpy.
TRADING

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@EnSaluja
BHEL may come of F&O ban for tomorrow’s trade -Open interest as of now at 79% of MWPL

PNB also very close to coming out of ban - OI at 80% of MWPL

Note- OI has to fall below 80% for a stock to come out of ban

#stockmarkets #Nifty #stocks
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@suru27
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Piyush Chaudhry
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@piyushchaudhry
In such a case, H&S can be either a continuation pattern or compound fulcrum.
This is how to differentiate:
• if right shoulder is smaller than left, most likely a continuation H&S
• if right is same or higher than left, and the price is not coming to neckline, most likely CF
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Kool Aggarwal
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@PharmaBull20_22
1 FMCG stock chart has so much to teach -
1) Cup
2) Handle
3) BO
4) Retest
5) Bearish RSI divergence

What is obvious, USUALLY doesn't play out #StockMarket

Another 1 from the same space...15min chart shows massive buying in the closing minutes & CE's running for cover. Find it---> Analyse it ---> Trade it
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HMK alias MANOJ
HMK alias MANOJ
@scorpiomanojFRM
#FreeTip
#PriceAction
This PA concept is not avlb in any textbooks:
In an uptrending market if the candle size decreases
a) but in an upward trajectory, the chances of price falling is high.
b) but in an horizontal / downward trajectory, the chances of continuing trend high
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