The Channel Alligator Trading Strategy

This trading system is based on an algorithm of building two indicators of different types  – the Bollinger Bands channel indicator and the classic Alligator indicator for binary trading. This symbiosis of technical means allows for trading with minimal risk and high profitability. This approach is characterized by the accuracy of signals, its simplicity, and its accessibility for beginners.

 

Description of the Channel Alligator strategy

One of the benefits of this trading strategy is the ability to use it on an options platform. Application of the strategy template to the trading chart completely eliminates false or erroneous signals generated by using other technical platforms and terminals.The Alligator indicator and Bollinger Bands are classic analysis tools, which is why so many brokers include them in their standard set of technical services. For example, this feature is available on the trading platform of the Binomo broker.

The Channel Alligator Trading Strategy

The main requirement for using the additional Alligator indicator to trade in dynamic price channels built by the Bollinger indicator is the heterogeneity of price fluctuations in moments of reversals of older trends and growth of market volatility. In such situations, reversal patterns of the channel indicator show false signals resulting in losses in a large number of positions. To minimize losses, the Alligator is used to filter false signals on the trade. To visually demonstrate such a complex market situation, we will give an example:

Description of the Channel Alligator strategy

As you can see, the breakdown of the average line of the Bollinger indicator, which when using classic tools of analysis is a trend reversal pattern and the direction of the price channel, has not received confirmation and, in the case of trading, would bring a series of losses. Precisely for these market situations that are highly cyclical, it is necessary to apply the Alligator indicator filter.

For correct operation of the trading strategy, the indicators should have the following settings:

  • Alligator – 15/10/7
  • Bollinger Bands – period of 40

Purchasing a CALL option

The signal to trade a CALL option is the following pattern of system indicators:

The signal to trade a CALL option

Asset quotes touch the lower border of the channel or break through in the short-term, then they reverse
The Alligator indicator confirms the basic model of quote movement reversals in the form of an intersection of Moving Averages going up:

Purchasing a PUT option

If you receive a similar pattern from the indicators but with the opposite building direction, you can register a PUT option:

register a PUT option

 

Expiry terms

This indicator will depend on the time period of chart construction of the underlying asset for binary trading. When trading on the tick chart, it is necessary to use binary options contracts with the maximum short term expirations. The optimal range is 60 seconds. When using a longer period of construction of the graph (timeframe), you must set the expiration contracts on the basis that during this period no more than 5 price candlesticks are formed in the chart.

 

Risk management

Generating trading signals on this strategy is highly cyclical. For this reason, increasing the volume of trading positions can lead to a heavy burden on your trading capital. To avoid this, you need to set the bar for maximum trading risks at the level of 5% of the total trading funds. The best approach to minimizing the risks associated with trading on a minimum account is the use of contracts with the initial value (the Binomo broker (visit website) has them at $1).

 

Reliable Binary Broker

 

Summary

This is a sufficiently effective approach to binary trading that allows you to register about 80% of your contracts on the market with a positive result, which in turn has a very good effect on your overall trading statistics. Such a system can be recommended for beginners.


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