Coppock Alligator Cross Forex Trading Strategy

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Coppock Alligator Cross Forex Trading Strategy 2

“The trend is your friend…” Traders would often hear this. So, traders go looking for a way to determine the direction of the trend and when they find a strategy that fits this idea, they get excited. They find a clearly trending market and test what they have learned. However, often times new traders would find themselves at a loss when their first few trades turn out to be losers. But why is this the case? Often, trend following traders end up chasing the trend instead of trading with it. They often enter the trend a little too late and as they take the trade the market reverses. The solution is to trade the early stages of the trend. This way the trade would have a lot more room to move in your favor.

The Coppock Alligator Cross strategy is one which provides trade signals during the early stages of an established trend. Profitable trades generated by this strategy often have low risk and high reward because trades are taken when the market is still at a reasonable value. This allows for a bigger headroom for the trade to move in your favor.

Bill Williams’ Alligator Indicator

The Alligator indicator is a trend following indicator developed by the legendary trader Bill Williams.

This indicator is basically a set of modified moving averages, more specifically the Smoothed Moving Average (SMMA). The long-term moving average is called the Jaw, the mid-term moving average is called the Teeth, and the short-term moving average is called the Teeth.

The trend is then determined by how the moving averages are stacked. If the moving averages are tight and choppy, the Alligator is said to satiated and might not be trending soon. If the moving averages are fanning out, then the Alligator is said to be eating with mouth wide open and is currently on an uptrend.

The Coppock Curve

The Coppock Indicator is a technical analysis trend indicator developed by E.S.C. Coppock. It is basically a derivative moving average, more specifically a weighted moving average of a sum of the rate of change.

It was developed with the intention of serving long-term investors as requested by the Episcopal Church. As such, the Coppock Curve is a long-term trend indicator which allows traders to determine the long-term trend direction.

The Coppock Curve is an oscillating indicator which determines trend changes based on the crossing over of its histograms from negative to positive or vice versa.

Trading Strategy

The Coppock Alligator Cross Forex Trading Strategy aims to allow traders to enter a confirmed trend based on the confluence of the Alligator Indicator and the Coppock Curve.

The Alligator Indicator would be the leading indicator in this setup. Trades are taken during the early stages of the trend based on the Alligator Indicator. This is when the moving averages are still starting to fan out.

However, trades are not taken immediately during the Alligator Indicator’s crossover. Instead, trades are taken when the Coppock Curve has already crossed over, confirming the trend direction indicated by the Alligator indicator.

The key to this strategy is the early exit which should prior to the actual reversal of the market. The Alligator indicator tends to contract right before a choppy market condition or a trend reversal. These contractions are usually accompanied by prices closing in between the moving averages. As such, we will be closing the trade as soon as price closes in between the Teeth and Lip moving averages. This allows us to exit early and avoid giving back profits to the market.

Indicators:

  • Alligator
    • Jaws Period: 26
    • Teeth Period: 12
    • Lips Period: 7
  • Coppock
    • RPerdiod1: 50

Timeframe: 1-hour, 4-hour and daily charts

Currency Pairs: major and minor pairs

Trading Session: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • The Alligator indicator should start fanning out with the Lips on top and the Jaws at the bottom, indicating a bullish trend reversal
  • The Coppock indicator’s bars should cross above zero indicating a bullish crossover
  • Enter a buy trade on the confluence of the above conditions

Stop Loss

  • Set the stop loss at the support level below the entry candle

Exit

  • Close the trade as soon as price closes in between the Lips and Teeth or below it

Coppock Alligator Cross Forex Trading Strategy 1

Coppock Alligator Cross Forex Trading Strategy 2

Sell Trade Setup

Entry

  • The Alligator indicator should start fanning out with the Jaws on top and the Lips at the bottom, indicating a bearish trend reversal
  • The Coppock indicator’s bars should cross below zero indicating a bearish crossover
  • Enter a sell trade on the confluence of the above conditions

Stop Loss

  • Set the stop loss at the resistance level above the entry candle

Exit

  • Close the trade as soon as price closes in between the Lips and Teeth or above it

Coppock Alligator Cross Forex Trading Strategy 3

Coppock Alligator Cross Forex Trading Strategy 4

Conclusion

This trading strategy allows traders to catch trades on a confirmed trend reversal while still allowing for high yields in many instances. This is because the signals generated by the Coppock Curve occurs when the trend reversal is already confirmed. Although it is a lagging indicator, it still works well because the trade signals are usually generated as price is retesting the moving average bands. This allows us to take tighter stop losses, which in turn allows for better reward-risk ratios and higher yields.

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Coppock Alligator Cross Forex Trading Strategy

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