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Alligator & Fractals is an effective trading strategy that works with the help of two technical indicators: the Alligator and Fractals.
Both of these indicators are included in the latest builds of the MT4 trading terminal. You can also download them on our website in the Indicators section.
This trading strategy is suitable for most currency pairs, however, we recommend using it for major pairs.
Having set the H1 timeframe for all the charts of the pairs to which the Alligator & Fractals strategy will be applied and having superimposed both indicators on the charts, we can begin to search for entry patterns.
The first condition by which to start the search for entry patterns is the last nearest narrowing and interlacing of the three lines of the Alligator indicator, also called the "sleeping Alligator". This is a state of consolidation.
Next, you should calculate the number of hourly candles during which this state of interlacing and narrowing of the indicator lines continues. We will use this value in the future to place a take profit order. In the above example, the state of the "sleeping Alligator" lasts for approximately 35 hours, that is, 35 one-hour candles.
Next, finding the "sleeping Alligator" on the chart, we turn to the values of the Fractals indicator. Here you need to find and mark the levels of the last two suitable fractals in the sleeping Alligator zone. Suitable are those fractals whose candles and candle tails do not touch the alligator lines.
The horizontal levels of these fractals are the levels of opening a position. You can place bi-directional pending BUY STOP and SELL STOP orders here, and when one of them works, the remaining one needs to be deleted.
Further, for the executed order, you should set the stop loss at the opposite fractal level, where the opposite unexecuted order was located.
Take Profit is set by the formula:
TP = (OP-SL) * 2 * (Ncandles / 24), where TP is the take profit price level, OP is the price of the executed order, SL is the stop loss price level, N candles is the number of candles in the "sleeping Alligator" state, constant 24 is the number of sentinels candles of one trading day.
In the above example, buy stop order is triggered first at the level of 1.11028, so you should delete the unexecuted sell stop order at the level of 1.10909, and set a stop loss in its place.
Following the take profit setting formula, determine the take profit level for the deal. TP = (1.11028-1.10909) * 2 * (35/24). Take Profit is set at 1.11351.
Conclusion
This trading strategy is good for its clear criteria for entering and exiting deals. By following this strategy and adhering to the clear rules of risk control, you can achieve a very good trading result. Experiment with this strategy on demo accounts to make sure that you have fully mastered the skills to work with it.
