Alligator Indicator versus the Triple EMA - Which is the Clear Winner?

If you are a fan of trading with moving averages and unknown with the gator indicator, get ready for a pleasant surprise.   In this article, we are sledding to do a head-to-head comparison of the Alligator indicator with the triple EMA (TEMA) to see which one comes out along top.

What is the Alligator indicator?

The Gator indicator is an on-chart trading tool created by famous trader and author Bill Williams.

The Alligator is used to affirm ongoing trends and their primary direction. In accession to distinguishing existing trends, cured traders besides habituate the gator indicator to enter counter trend moves.

The Alligator consists of three moving averages. Note these flowing averages are not just SMAs or EMAs; the unavowed behindhand the Alligator is a bite more than complex. Thus, keep reading!

What is behind the Alligator?

The Alligator index number has trine lines – green, red, and bluing. The green line tracks closest to the price fulfi, the flushed line is the middle average and the blue origin is the furthest from the price action.

Look away at the below visualize for a working example:

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Gator Index number

Opus of Three Lines

• Green – this is line represents the Alligator's lips. It is a 5-period smoothed moving average, displaced 3 periods to the right.
• Red – this pedigree represents the Alligator's teeth. It is an 8-period ironed moving average, displaced 5 periods to the right.
• Blue – this line represents the Alligator's jaws. It is a 13-period smoothed moving average, displaced 8 periods to the right.

The in a higher place is the nonpayment Bill Williams Alligator settings, which of trend stool be designed to meet any trading fashio.

What signals are provided by the Gator?

The Bill Williams Alligator has three stages:

The Alligator is dormant

The signs of a sleeping Alligator are when the three lines are close to each other. This naturally translates to low volatility and trading should be avoided during these lull periods.

The Alligator is wakening

Usually, this is the time when the lips of the Alligator (green line) cross the teeth (ruby railway line) and the jaws (blue line). If the lips intersect the other 2 lines in an upwards forge, we take up an awakening bullish Alligator. If the lips cross the other lines in a downwards fashion, we have an awakening bearish Alligator.

The Alligator is eating

This is when we should also atomic number 4 feeding – not burgers, but win!

The Alligator could set forth feeding afterwards wakening. The signalise for a hungry Alligator is after the completion of the wakeful dormy present, a candle closes below or above the three lines. This is when we should go long operating room short respectively.

The image below illustrates the three stages of the Alligator:

Alligator Stages

This is a 15-minute graph of Facebook from Oct 1-6, 2015.

In the downhearted rectangle, the Alligator is sleeping and we should not open some positions.

The pink circles show U.S. when the Alligator is attempting to wake up improving. In these moments, we should organize ourselves for a long stance.

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When the outdistance betwixt the lines begins to exposit and we see a bullish candle closing higher up the Alligator dentition and jaws, we depart lengthened.

Now that we have covered the Alligator indicator, let's take a look at the TEMA.

What is the Triple EMA (TEMA)?

The multiple exponential moving mediocre, likewise known as the TEMA, is a bingle line configuration on the chart. It smoothes the monetary value of the equity ternion times exploitation an EMA formula and then calculates the modify in the EMAs based on the result for the previous day (n-1). Traders manipulation the TEMA to enter and manage trades during strong trending markets.  Conversely, the TEMA is not a great tool when the commercialise is ranging, since it provides many fake signals.

What forms the TEMA?

The TEMA line buns easily be mistaken for one of the many moving average indicators.  Don't believe me, check out the below image:

Triple Exponential Moving Norm

You may be thinking: "Hey, isn't this a 10 or 15-period SMA?" Wrong!

This is a 15-minute chart of Intel from Sep 24-29, 2015. As you can see, the TEMA bounces above and beneath the price action. The thing that may not exist apparent on the graph is the TEMA reduces lag usually created by the other moving averages.

Clean-cut equally muck up right?  I hope the close image will assist clarify things a bit.

30-Period TEMA

I have added a 30-full point EMA to boot to the 30-period TEMA.

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Notice that the put behind bars of the TEMA is importantly less when compared to that of the standard EMA.  The reason for this rear be recovered within the formula of the TEMA.

TEMA Formula

TEMA = (3 * EMA – 3 * EMA (EMA)) + EMA (EMA (EMA))

In life, more complexity does not always lead to better results, just in the causa of the TEMA versus the EMA, this may glucinium the outlier.

Smoothing of the TEMA Index

The larger the historic period of the TEMA, the more smoothing.

This of course also leads to advance lagging in the trading signals.  Thus, be careful when configuring the TEMA as the volatility and the time cast should also be taken into consideration. The tighter your TEMA, the more fake signals you leave brush on the chart.

How to trade with the TEMA?

In terms of signals, the TEMA acts the Same style as a definitive moving normal. When the price breaks the TEMA upwards, a long-handled signal is generated. When the damage breaks the TEMA in a bearish direction, a short signal is generated.

In addition, the TEMA can be combined with an extra moving average in order to formalise signals.

TEMA Trading Signals

Above is a 15-transactions chart of Bank of US from Sep 26-29, 2015. Present I in use a 20-period TEMA configuration.

Down the stairs are the trade signals generated with the TEMA:

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• 5 debut signals – four long and one short
• 3 pretender signals – all of them longstanding
• 2 victorious signals – one long and single poor
• Profit from winning positions = $1.02 per share
• Losses = $0.09 (9 cents) per share
• Result = lucre of $0.97 per share

This is the prison term you should remember when I said that the TEMA strives to identify rapid market movements, just concurrently fails during ranging markets.

Thus, the TEMA setup should make up carefully chosen accor&t to commercialize unpredictability, the graph reach, and the trader's style.

Alligator vs. TEMA

In real time that we have covered both indicators, let's compare the two:

• The Alligator index number displays three lines, while the TEMA has only one line. Thus, the Alligator provides more trading signals than the TEMA.
• Since the Alligator has more than components than the TEMA it is better suited as a standalone indicator.
• The Alligator indicator trading system is probably to give you less fake signals compared to the TEMA. The reason for this is when a lineage is range bound; the Alligator is unerect, which clearly says, "Stop AWAY". At the same meter, the TEMA does not give America a signal when the market is ranging, because it is a single tune configuration.
• The Alligator lags more than the TEMA. Eastern Samoa antecedently expressed, the TEMA's purpose is to isolate the lagging as far as possible. Thus, TEMA gives earlier entry signals than the Alligator. This makes the TEMA riskier than the Gator, since IT increases the amount of false signals. Yet, if victimised carefully, the TEMA could resultant in communicable the commencement phases of a new trend.
• The TEMA gives lower add up of winning signals, but these signals lead to positions with high gains per share. The Alligator gives higher number of successful signals, but these signals will often put America in positions, which catch up less than incomplete of the trend.

Let's in real time play a regular trading scenario with the Alligator and the TEMA one by one ready to compare the results:

Too Some TEMA Trading Signals

Wow! What Chaos! The truth is that this is what you are going to get when trading with the TEMA.

This is a 15-minutes chart of JP &iel Morgan &ere; Chase for the period of Sept 21-29, 2015. We practical a 20-period TEMA to the chart and we arrive the following results:

• 24 entry signals – 14 deficient and 10 long
• 18 shammer signals – 10 short-snouted and 8 long
• 6 good signals – 4 short and 2 long
• Profit from winning positions = $4.47 per part
• Losings = $3.35 per share
• Result = profit of $1.12 per plowshare

Now we are going to use the like chart, but will only apply the Alligator index:

Gator Trading Signals

More than clearer than the previous example, don't you think? Let's immediately summarize the information from this picture:

• 5 unveiling signals – 4 squat and 1 long
• 2 simulated signals – both are short
• 3 healthful signals – 2 short and 1 extended
• Profit from winning positions = $2.02 per share
• Losses = $0.45 (45 cents) per share
• Result = profit of $1.57 per partake

The Alligator or the TEMA, that is the question!

I believe the results speak for themselves.

	Gator	TEMA
Signals (Positions)	5	24
Fake Signals	2	18
Winning Positions	3	6
Total Profit	$1.57 per share	$1.12 per portion

With the Alligator, we have achieved better results with 20% of the elbow grease. What we did non show in the above example are the commission savings you would have racked up by using the Gator indicator.

Of course, one trading model is not enough information to declare victory; however, reduction the interference, less commissions and the fact the Alligator hind end stand along its have is Thomas More than enough reasons to rank it above the TEMA.

In Conclusion:

• The Alligator indicator consists of 3 moving averages – the lips, the teeth and the jaws of the Alligator.
• The Alligator gives three signals:
• Unerect Alligator – this is when we shouldn't be in the market
• Awakening Alligator – this is when we should get ready to hop in the market
• Eating Alligator – this is when we should be in the grocery
• The TEMA shows a separate curved draw, which is formed by a triple smoothened exponential vibrating average formula.
• The purpose of the TEMA is to skip over into emerging trends and reduction the lag of trading signals.
• The TEMA gives us two signals:
• Go mindful when the price closes above the TEMA.
• XTC little when the toll closes beneath the TEMA.
• The TEMA generates many fake signals, because it consists of only one line. Again, the TEMA is more sensitive to the movement of the price compared to other MAs.
• The TEMA gives more misrepresent signals than the Alligator.
• The Gator produces less trading signals.
• The Alligator gives amended results as a single on graph tool.

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Source: https://tradingsim.com/blog/alligator-indicator-versus-triple-ema/

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