Hello and welcome back to Module 10, part three of free. In this video we will conclude module 10 and our technical analysis indicators series. So the next indicator we will be looking at is called the old Williams, alligator or just the alligator. The indicator was introduced by Bill Williams in 1995. And it is based on the premise that markets tend to spin around 70 to 85 to 85% of the time ranging or consolidating and in turn around 15 to 50% of the top. And it is during these periods that you want to be on board or on that training wave.

The name of the indicated rostrum the way the indicator looks and functions on the chart. The alligator uses three smooth moving averages that open up as the market starts trending and in places up entangles when the market starts arranging, these three lines represent the mouth of an alligator that opens up defeat and closes when it's saturated or resting. We also use these lines to pick up and trade divergence. Looking at the components, they are free components, and they all use Fibonacci numbers as you will see not. The first one is the jaw, which usually represented by a blue line. It is based on a 15 period smooth moving average, that is moved into the future by eight bars, in other words, and the line extends eight or eight periods after the closing price, so it's project forward.

And the second line is the school the TIF it's represented by red line. It's an eight period smooth moving average. So a little bit faster. This move forward by five bucks. The last line, the green line, the lips is a five periods smooth moving average. And it's moved forward by three bars into the future.

And as you can see, we are all using all Fibonacci numbers. And that is a three to five, eight and 15. And I just like to point out that the crocodile was even mean to be traded on its own but rod as a guide to help you stay with the trend and to identify and get on board those pull backs. So looking at an example, isn't it nice indication of how the Bo Williams alligator looks on the chart. As you can see the three lines being represented here. The Lifeline the tubing, the Joe, the red line here being the teeth and in the green line, being two lips and The premise here is that as these lines start to open up, it's it's the same way that the jaws of the jaw of the alligators open up, getting ready to defeat So, as you see, I've commented that the alligators now hungry in the mouth opens up and you can start looking for long trades.

And same thing here. So also the period with the lawns are entangled with the alligators resting and the first the lips are moving so you can see that because the lips are the forces of the three lines it will start to move first. Secondly, the teeth and finally jaw so as it starts to open up as you can see at this point over a year, the market is ready to start training and you can probably start to look for a pullback maybe to get on board the stream. And as you can see price. price moves into the mouth that alligator And it would be a good time to place place that those short stop orders. If you are trading this setup, I would suggest that you place a low so as the price is spilling into the alligator as suggested a short stock order round about just below the last fractal down fractal over here.

So you will be waiting to go short at this point. And then you can place a stop loss right about I'd say above the previous fractal that is causing this breakdown concerning targets and as you can see, price actually respects the alligator cause as long as the alligator mouth is staying open, it's really defeat. So you'd see frost actually comes back into the mouth of the alligator about twice is the Stan, and as I mentioned, pullbacks would be expected and you can even add exposure or additional short trades in this instance. And of the something like the rejection of this is a bearish candle over here. So that would maybe be a good place to add shorts. Or if you would, if you missed this first leg of a trade you could have gotten in around Yeah, maybe.

And targets can be defined using price action, it can take imboca price or number theory that we have discussed. And just to recap, that is using those legs, measuring those based on the economic miracle of price theory or just counting them 1-234-567-8910 1112 1314 1516 17. So trying to find those targets Using economical price and number theory. Looking at this example over here, you'll see that price comes back gets rejected. And then as we can now see on site, the final move that starts to move up actually moves up way into the move up against the job to alligator with being rejected, in found find support on the TIF gets entangled in TIF. So, just looking at price action does it obviously be a point to where you need to get out even looking at this success of bullish candles as free for instance, that is a bullish setup.

So as you can see, we are training while these lines are all nicely opened, pointing downwards. And then as the price of the lines start to entangle, we saw the range so this is Exactly why this indicator was designed. It's to get you on board those spirits with the process actually arranging and to keep you out of keep you away from trading when price is starting to range. So over here, this is just too much for the tility. And a strategy that might work in a period like this is the Bollinger bound strategy that we discussed, where you're trading from the high of the bollinger bands to the lows. So that is something that you might look at, to trade.

And, you know, something else I want to point out is to be on the lookout for divergence between price and the red line, which can mean a pullback is new. So looking at this initial move down, and the way you would measure that vergence using the alligator is to start throwing a line from the first Canvas breaks through the little red line being this red candle and following Just trying to connect tries to round about if we were to go to this point over here you can see the mouse moving. And it see that the angles pointing the reference pointing that angle. And if you're looking at price you can see it's moving away from the red line. So, it is forming kind of divergence between price and red line and that just means that a pullback is due. And so this is something to look out for maybe experiment with to get those deficiencies, we price it too, come back into the alligators mouth.

And looking at the area way price is in in consolidation. And you can see that up at a previous high up here. And in some very nice bullish bullish action, we have these three successive green candles moving upwards and each one getting larger and in eventually breaking out of this, this range over here. As you can see this the range, we break out, come back for a retest of the range high. And if you will look down, you'd see that the mouth alligators now open the game, meaning that alligators hungry and we are currently forming a new train. So this would be a good place to get on board and we're a bit skeptical and wants to wait for the pullback you can get in any area around here and placing your stop loss right below the previous range.

And you know as you can see how we actually come back retest the green line and the red line and I'm not even sure we where we went from here but I strongly suspect that we probably found some support here and start arranging again. But it's definitely nothing new really bullish other than maybe the frequency of red candles at this stage but this was probably a four hour chart for i remember correctly and that that last camp actually didn't close. And though that last that's the second last red candle that price rejection from the bottom meaning we probably want to hit back up. So at this stage all bullish uptrend and you'd start looking for Long's and maybe just to show you how to add it on your chart using trading view. So here's trading view. We back on our use example.

As you can see, I have a pitchfork drawn on the tracking price, but I'm just gonna hide all of that for now. So let's just see how to bring tools and indicators. Alligator agar built in Williams alligator Yeah, and again sister loading so this is a live example from our chart and as you can see we are in a very nice strong uptrend came out of an area of consolidation we can see the alligators are in the alligators jewel and lip sniffing, dangled so it's sleeping and then it opens up and you can see our price retests and then moves upwards. So you know, good reason to believe we might see some further price continuation or maybe a small pullback but definitely still an uptrend. And here's another area we can see the consolidation happening as price untangled and yeah, you can again see the trend.

So yeah, that is the bull Williams indicator. And very nice indicator to to help you identify the trend and pull backs. So having a rate touched on the concept of divergence, this is a good time to maybe explain the concept in a bit more detail. divergence in a context of indicators would refer to an imbalance between what prostrating and what indicator is doing or showing you. Now, the assumption Being that this signals and impeding change in direction. So, in contrast to most Signals Generated by indicators being lagging in nature, think about moving average crossover for instance, they are all based on smoothed or past data.

So, they are lagging divergence signals are presumed to be leading in other words, they might indicate to change that is yet to happen. Now, there are two major divergent signals, regular or classic divergence which leads leads to your price reversal. AdWords price starting to move in the opposite direction and then which is really doing and in hidden divergence which leads to price continuation sales Looking at examples, I've shown this chart showing you the two top state your classical, bullish and bearish as well as your hidden bullish and bearish divergence. So looking at that classic bullish divergence, you see that price prices matter making new lows and indicators making over that same periods. It see that you indicate is making higher lows and until that is the divergence that you are looking for in classic bullish divergence and this is showing you is that price is going up.

And something that I'm pointing out at you right is that if you struggle to remember which is which just remember that tops if the tops on the lining, we are heading down in if the bottoms the lows on the line yet eating up. So in this case, the bottoms on the lining, which means we are hitting up Looking at the opposite that the bearish divergence, the classic bearish divergence, you can see prices forming new highs with the indicator or oscillator is making lower highs that would be bearish divergence and you'd expect price to reverse from that area. So you can see prices move down looking at hidden divergence, hidden bullish divergence. So we are now looking at your price continuation. You can see prices making a new high, whereas the indicator is making actually just want to double check something Yeah. Yeah, so if you're using producer versions, you see that price is making higher low and your indicator is making a lower low.

So in other words, the bottoms on the line, which means possibly up and since the trains already up in this instance, that means it's priceless simulation. So it's actually a bullish signal. So that is a bullish divergence looking at hidden bearish divergence. And it's a we in a downtrend price making a lower high whereas your indicators actually making a higher high and that would show you that we continue continuation to the downside being your hidden bearish divergence. Now the indicators used up really discussed but you can use anything from RSI or stochastic MSCI lots of indicators you can use I personally prefer the MSI or the RSI. But this action divergence indicator called the MACD or the moving average convergence divergence, sometimes called the MACD and it is a momentum oscillator that is used to identify trend and divergence.

So this is a popular indicator that is used consists of two lines pivoting around the center line and sometimes in the company histogram. Now the MACD line is calculated from a 26 exponential moving average, subtracting your 12 exponential moving average your signal line is the nine exponential moving average of that MACD line. And at the histogram that could be just showing you boss it could be the MACD line minus signal line. And again note taking vocal numbers of nine and 26. And now firstly I'm going to be faster MACD that some traders use it as a train validation tools. For instance when a the signal line crossed over the MACD nine, or B, the MACD line crosses the center line, or C as a divergence indicator when price divergence divergence from the MACD line, but let's look at an example from the chart.

So I'm gonna put you can add our MACD indicator search for MACD up there you can see. So the red line is your MACD line and the blue line would be your signal line and that those red bars are you Instagram. So after ratio now those are calculated. And all this would be useful divergence for instance is it's quickly see if we can spot some divergence here and then not see the Virgin's is on. Okay, so if we take that top syringe because I'm drawing out all the drawings, I'm coming back. So as you can see, these are top tops as lower highs forming on the on the indicator and if you look to create the same points on the chart, you see That's actually really lovely that's actually working out.

You see higher highs, higher tops on the on the price and lower highs on the indicator that would be classic bearish divergence and the price is reversing divergence does work. Obviously, as everything else in trading, nothing is guaranteed and it's no magic indicator but divergence is definitely something that you can look out for. And also this MACD oscillator, which is that this area this upper area of the year, that would be back to the im mentum area and then your bottom view the lower mentum area, sometimes referred to as over bought area or oversold area. And if you were looking to try price reversals, it's always wise to wait for price to move the MACD line to move out of this, this high momentum area. So for instance, You can see that the blue line crosses below the red line at this point and then starts to move out of this high momentum area and then we can see some pressure vessel but the MACD is a lagging indicator and it's not not based useful identifying pullbacks, so have it use it, I'll use it primarily for divergence.

Okay. The next indicator that we will be looking at is the average true range indicator or the ATR. It was developed by realice Weldon and is a popular indicator for measuring volatility. Now, without getting into the math of this indicator, it is basically measuring the size of the average price move. think in terms of candle size over a specified period. In other words, higher ATR would mean that there are there are more interest was a music writer and the low end at a lower value would mean that there are less interest because we are making smaller candles.

So in theory, it can be used to validate the enthusiasm behind a move or breakout. We're a bullish reversal with an increase in ATR for example, with elite buying pressure and support the reversal whereas, a bearish reversal with an increase in ATR would indicate a selling pressure and another popular use of ATR is that of dynamic stop loss. And what I mean by that is you can use the current low of a candle and in fact 80 of the lead times it by two and trail your your current position if you are long or opposite to that user high and at two times the or whatever that is, the ATR and above it, and then use that as a stop loss. If you're short. Let me show you the chart looks. So let's quickly remove the MACD indicators.

If we are we go average true range. So you can see by default it is calculated over 14 periods and you can see the value over here. Now because we're trading forex, you know we'll be looking at value. So 17 1820 pips, so that is the average size of candles. And whenever you have a senior higher it of value, it means you assume that they are more volatility and maybe higher interest in certain areas. So, I suspect that areas of interest or especially is a consultation probably also siia at all valleys because of the higher volatility And even breakouts also see it already is because of the large candles that is happening.

And what I'm what I had the example I used with using ATR stop loss is to say that if you were to go long, let's say we're going along at this green line of the bull Williams indicated lapse here and we can see that the ATR value are currently around 18 to 20. You can say, take the value of 20 pips times that by two for instance, and we are trading that last fractal was not yet a fractal, but that last though, with 20 pips down so you maybe use that as a dynamic stop loss level because we know that the average move is around about 20 pips so if you use double that as a distance away, you should theoretically be safe for minor pullbacks. So that's just another way to use the ATR indicator Looking at Elliot wave theory, which is like the sort of introduction so it wave theory gets its name from its founder, Ralph Nelson Elliott will between 1958 and 1946 published a series of words, then detailing what he described as the wave principle.

And the principle dictates that collective investor psychology or cross across ecology moves between optimism and pessimism in natural sequences, and that can be defined and seen in the market as wave structures and those operations all over the financial markets if you know how to identify them. Now, I'm not going to pretend that I'm an expert in understanding all the intricacies of Elliot wave theory, because I probably don't and never will. But what do you understand is the basis of the theory and underlying principle of investor sentiment? That reflects as price action. So, in this final section of module 10 our present what I understand of the theory okay. So, the basic Elliot wave theory is what can be defined as a five wave and numbered one to five pattern called impulse waves followed by a three wave labeled ABC pattern called corrective waves.

And now, we are we will discuss the corrective waves on the next slide. So, in this slide we will focus on the impulse waves and so, where's one three and five sort of smoothes out John's example of both? Elliott Wave a simple representation of Elliott Wave structure and impulse waves as well as the way it will look in a downtrend. Just to give an example when I explain each each wave Waves one, three and five. Those ones would be your motive. Waves meaning they go with the primary trend, while waves do and for the ones that are often read our corrective waves meaning they move down to the primary trend.

And you can actually use Fibonacci levels or retracements to maybe help identify those. But in the end of module 11, we'll look at some at your to metric patterns, skooled harmonic patterns that actually ties in a lot of Elliott Wave to maybe help identify these waves. I just want you to confuse waves to enfold with ABC reactive waves, and those are actually separate to these impulse and correction wave second step 12345. So how do you We're looking at wave one and Stanley shall move a point soon of the capitalization. With some investors would start thinking it's a good point to start buying or selling and that would cause the price to rise. So, initially wave one would be difficult to take.

But as more and more people start with interfer the train more people get on board in room it will push the price higher. So wave do so often market started to rise in in the example of an uptrend or decline is on the downtrend due to other buying pressure or selling pressure. And investors would start taking profits off the table and that can cause price to fall. So wave to that first corrective wave and just due to people starting to take some profits off the table, and feeling that the process moves too far along at this stage. So, that is what is causing that corrective wave to wave three and is when after that correction of worst wave to the masses that should that would be the bulk of investors start to see opportunity and they feel the prices are good enough value a price festival game and they would start jumping on board and that would usually lead to a new high and as in the example of an uptrend or a new learned example of a downtrend.

And so, that is wave three, wave four is our next corrective way. And that is when that small amount of investors start taking profits. So that can cause a pullback again, and it shouldn't be more than around 50% retracement of that third wave. So that could be anything From a flat zero to 50% Fibonacci retracement if you were to use Fibonacci wave five, and so at this point everybody wants to get other on or off. And that would lead to the final search or fall under the guise of a downtrend in either a four year for the uptrend or depression for the downtrend. So the fifth and final wave is B.

Everybody is now aware of this new bull trend or to market and embrace getting on board and it's really just pushing the price higher and higher and higher to a point where it's no longer sustainable. Similarly, in a downtrend, everybody's getting on board this downtrend now because it's clearly defined and it will push the price lower and lower and lower until everybody decides that Enough is enough. Looking at those corrective waves that I was talking about, so now that The five wave impulse five wave impulse waves hadn't played out in under that state of the folio depression is fine for a period of correction or at least consolidation. So, the in between so far as to define 21 different ABC corrective patterns about luckily they are made up of three simple to understand patterns and your attempt to explain those patterns using an uptrend version of deformations.

And you can just invert those for a downtrend. So the first one is Zacks. So that would be a so they just have a piece of WAV files and I'm explaining so you have you do waves counter train that is a CSS counter to your bigger one to five Elliott Wave structure, with one slight pullback being wave B which is around 48 The same Fibonacci pullback is measured from the top of wave five to the bottom of wave a. That would be around 35 to 8% Fibonacci retracement and then you get a further correction of Lake see it as wave moving even lower. As you can see I've point out here that your corrective way with a usually Undo, undo impulse wave for so often thumbs. You'd probably notice when studying Elliott Wave here that this is a corrective wave undo is most of the movement caused by the fifth wave of the impulse wave.

The second formation is flat formations, and that is two moves counter trend. A and C. Again I likely like the Undo symptom movement created by wave five and in the US Do corrective pullback or your pullback wave with B that actually takes you back maybe to the top or around about that area of move a and then C again moving downwards before we actually start with our next and correct impulse waves 12345 and the last one is a triangle formation exception to the ABC rule as we add a wave D and the wave is identified is off the wave five we get that wave a correction B, C D E and it converges into a tunnel before finally, starting with the new impulse wave of wave 12345. So this is samples for an uptrend. Obviously for downtrend, the invert inverted of this The inverse inverse of this would apply.

Just to conclude Elliot wave theory and here are some final remarks each individual link or wave, be impulsive corrective can be deconstructed into the whole five wave impulse plus three wave corrective pattern. In other words, wave AB can be represented by the entire wave, and this is known as self similarity. And just going back to spend what I mean by that is, if you were to look at me that wave a of this example, yeah, that whole wave can be represented by the entire database theory. So, it's like inception in the movie. So, it would be 12345 and a b c correction. So, this whole thing can be represented by buyer at wave structure and discount this.

This is valid for each and every wave that is formed in indeed wave theory. Okay and then there are three cardinal rules when the finding the waves. And first rule is wave three can never be the shortest impulse way to do is that wave two can never go beyond beyond the start of wave one with an uptrend shrink or lower then with wave one starting and then the third true is that wave four should never venture into the same price area as wave one. And that is a brief explanation of Elliot wave theory. So you're well done, and that concludes mercial thing. If you have any questions, feel free to email them to me at info at effects automated.com