Our first signal entry, into any market, is always the first fractal that emerges outside the Alligator’s mouth. Once this signal is hit, we will take any and all signals that are triggered in that direction.
If the buy signal is above the Red Balance Line (the Alligator’s Teeth), we would place a buy stop, one tick above the high of the up fractal. If the sell signal is below the Red Balance Line, we would place a sell stop one tick below the low of the fractal sell signal.
We would not take a fractal sell signal if, at the time it is hit, the price is above the Red Balance Line. Therefore, in vise verse, we would not take a fractal buy signal if at the time it is hit, the price is below the Red Balance Line
This is the best method we have found to filter out nonprofitable fractal trade.
All markets are characterized by the fact that, on the most part, the prices do not change too much, and only short periods of time (15–30 percent) account for trend changes. Most lucrative periods are usually the case when market prices change according to a certain trend.
A Fractal is one of five indicators of Bill Williams’ trading system, which allows to detect the bottom or the top.
The fractal needs to be filtrated with the use of Alligator. In other words, you should not close a buy transaction, if the fractal is lower than the Alligator’s Teeth, and you should not close a sell transaction, if the fractal is higher than the Alligator’s Teeth.
After the fractal signal has been created and is in force, which is determined by its position beyond the Alligator’s Mouth, it remains a signal until it gets attacked, or until a more recent fractal signal emerges.
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