RAVI Alligator Forex Trading Strategy

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RAVI Alligator Forex Trading Strategy

Making profits in trading is based on two factors, win rate and reward-risk ratios. Traders could either make small consistent wins based on a good win rate or hit the jackpot trade that could make the month profitable. It is usually a mix of the two. Traders who have a good win rate often have negative reward-risk ratios, while traders who have high reward-risk ratios often have low win rates.

Trend reversal strategies are often on one end of the spectrum. Trend reversal traders often have a subpar win rate but have excellent reward-risk ratios. This is because the market does not trend to often. In fact, the market ranges about 80% of the time and only trends at about 20% of the time.

One way to improve your chances of getting the right trend reversal signal is by looking for confluences. Confluences are different entry signals based on different thesis that are pointing the same trade direction at approximately the same time.

RAVI Alligator Forex Trading Strategy is a simple trend reversal strategy that makes use of two complementary indicators to identify trend reversals. This allows traders to take trend reversal trades that have an improved accuracy while still maintaining an excellent reward-risk ratio.

RAVI Indicator

RAVI basically stands for Range Action Verification Indication. It is an oscillating indicator developed to help traders identify trend direction, trend reversals and momentum.

RAVI indicator shows the difference between the current price and historical prices in based in a percentage form. The indicator displays histogram bars to represent trend. Positive bars indicate a bullish trend while negative bars indicate a bearish trend. As such, a crossover from negative to positive or vice versa could indicate a possible trend reversal. The indicator also marks -0.3 and 0.3 on its range. Bars that has breached above 0.3 could indicate a strengthening bullish trend, while bars that drop below -0.3 could indicate a strengthening bearish trend.

Alligator Indicator

The Alligator indicator is a trend-following indicator developed and made famous by the legendary trader, Bill Williams.

This indicator is basically a set of moving averages that could help traders identify trend direction based on the arrangement of the moving average lines. It could also help traders identify if the market is in an expansion mode or in a contraction mode.

The Alligator indicator is composed of three moving average lines. The fastest line is referred to as the lips of the Alligator. It is a 5-period Smoothed Moving Average (SMMA) displaced three periods to the right. The second line is called the teeth of the Alligator. It is an 8-period Smoothed Moving Average (SMMA) displaced 5 periods to the right. The last line is referred to the jaws. It is a 13-period Smoothed Moving Average (SMMA) displaced 8 periods to the right.

Trend direction is simply based on how the moving averages are stacked. If the lip is above both the teeth and the jaw, the market is said to be bullish. If it stacked inversely, then the market is considered bearish.

Market contractions and expansions are based on how the moving average lines behave. If the lines are contracted, the market is also said to be in a contraction phase. If the lines are fanning out, then the market is in an expansion phase.

Trading Strategy

To trade this strategy, we will be looking for confluences between the RAVI and the Alligator indicator. Both indicators work well as a trend-following indicator. If used together, the indicators tend to be complementary and confirm the signals produced by the other indicator.

On the RAVI indicator, the bars simply must cross over zero. A bar crossing above zero signifies a bullish trend reversal, while a bar crossing below zero signifies a bearish trend reversal.

Then, the Alligator indicator should confirm the trend reversal from the RAVI indicator. The Alligator moving average lines should start to crossover and fan out. The crossover is initiated by the lip line moving above the teeth and jaw lines. The actual reversal signal is completed once the teeth line crosses over the jaw line.

Indicators:

  • Alligator
  • RAVI

Preferred Time Frames: 1-hour and 4-hour charts

Currency Pairs: FX majors, minors and crosses

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • The RAVI indicator bars should cross above zero.
  • The Alligator lines should crossover and fan out in the following order:
    • Top: Lips
    • Middle: Teeth
    • Bottom: Jaw
  • Enter a buy order on the confluence of the conditions above.

Stop Loss

  • Set the stop loss below the Alligator moving average lines.

Exit

  • Close the trade as soon as the RAVI indicator bars cross below zero.
  • Close the trade as soon as the Lips of the Alligator indicator crosses below the Jaw.

RAVI Alligator Forex Trading Strategy

RAVI Alligator Forex Trading Strategy 2

Sell Trade Setup

Entry

  • The RAVI indicator bars should cross below zero.
  • The Alligator lines should crossover and fan out in the following order:
    • Top: Jaw
    • Middle: Teeth
    • Bottom: Lips
  • Enter a sell order on the confluence of the conditions above.

Stop Loss

  • Set the stop loss above the Alligator moving average lines.

Exit

  • Close the trade as soon as the RAVI indicator bars cross above zero.
  • Close the trade as soon as the Lips of the Alligator indicator crosses above the Jaw.

RAVI Alligator Forex Trading Strategy 3

RAVI Alligator Forex Trading Strategy 4

Conclusion

This trading strategy is a simple trend reversal trading strategy based on the confluence of two complementary indicators.

Trend reversal strategies are often difficult to trade. Taking trades blindly using trend reversals could sometimes be very dangerous.

This strategy should not be used blindly in any market. It should be used as a market entry timing with another thesis behind the reversal coming from a higher timeframe. For example, traders could be anticipating a trend reversal on Fibonacci level on a higher timeframe. Traders could use this strategy to enter the market on the lower timeframe.

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