Best Forex Indicator Combination: Alligator Indicator with MACD and RSI

Trend-following is proven by many professional traders as the best trading theory. The main advantage of the technical strategies based on the trading-the-trend theory is that they enable users to collect a series of profits in a grand movement. Hence, trending systems are always our first priorities to recommend to traders, and in this article, we would like to introduce to you an effective trending strategy composed of three popular indicators - Moving Average Convergence Divergence (MACD), Williams Alligator and Relative Strength Index (RSI).

What is MACD and RSI


Like any trend-sticking strategies, this system includes leading and lagging indicators. The MACD, a very popular leading beacon developed by Gerald Appel in 1970, is applied in this system with the responsibility to determine whether market momentum is available. Meanwhile, the Williams Alligator whose developer is Legendary trader Bill Williams has the function to identify strong trends and tradable occasions. With three exponential moving average lines co-ordinating harmoniously, the Alligator indicator is a perfect companion of the MACD, making the system a comprehensive and proficient trend detector.

So, what could the Relative Strength Index do for the system which seems already effective? The answer is: to support the MACD in filtering out wrong trading opportunities. Having the same responsibility as the MACD but the different operations, the RSI is a powerful supporter which well improves the strategy’s accuracy.

The settings of the three indicators used in this system are as follows:

  • Alligator Indicator set of 25-5-2;
  • MACD with the setting of 12,26,9;
  • RSI with the parameters of 30.


The Alligator indicator uses three smoothed moving averages, set at five, eight and 13 periods, which are all Fibonacci numbers.

Over the last 12 months being carefully tested, this trend-following technique has engendered +2000 pips so far, with a win-rate of 81%.

How to use Alligator indicator with RSI and MACD


This system works best on the 1-hour chart and can be applied to any currency pairs, commodities, stock indices or cryptocurrencies.

A bullish trading opportunity is determined when:

  • Prices trade above all three EMAs of the Williams Alligator;
  • The MACD turns above 0;
  • The RSI line crosses above 50.


Best Forex Indicator Combination: Alligator Indicator with MACD and RSI

On the contrary, a bearish occasion is defined when:

  • Prices trade below all three EMAs of the Williams Alligator;
  • The MACD turns below 0;
  • The RSI line crosses below 50.


Best Forex Indicator Combination: Alligator Indicator with MACD and RSI

Below are the important notes when using this system:

  • Only one position should be opened at a time;
  • 5-10 fully closed candles are required to affirm a signal valid;
  • The stop-loss setting should be 30 pips, while the take-profit could be up to 90 pips. When the RSI line trades into the overbought/oversold territory, the running order should be closed.

Pros and cons


Pros:

  • Easy-to-use, general-purpose;
  • Generating highly accurate trading opportunities by its strict checking requirements;
  • Enabling traders to make continuous profits from long trends.


If you like this strategy, you might also be interested in this Williams Alligator
Cons:

  • Requiring a high level of patience;
  • Necessitating traders to constantly observe the charts.

Conclusion


Thanks to the harmonious association of the three most powerful indicators, this based-on-trend-following-principle technical system has shown itself to be a very effective trading technique. We believe that its good testing result in addition to plenty of advantages mentioned above will make you satisfied when using the system to trade the currency market. And, don’t forget to use it along with risk controlling and psychology managing methods in order to minimize the risk and maximize your potential profits.
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