Introducing the Indicator
Before even starting a discussion about trading with the gator oscillator, it should be mentioned the fact that this is one indicator that is repainting. This means that the data that is plotted below the chart it is changing based on the current and future price action.
Therefore, while taking a trading decision based solely on the gator oscillator will be ok, back-testing it should bring only troubles as it is showing nothing but wrong data.
One solution is to interpret it together with the Alligator indicator as this is a trend indicator and we all know it is not repainting. So back-testing will work just fine if one is looking for confirmation on the Alligator side.
How to use it for Binary Options Trading?
Plain and simple, look for a trend to start when both the positive and negative parts of the Gator oscillator show the same color and trend the option in the direction the Alligator goes: call options if the Alligator is aligned to the upside, and put options if the Alligator is aligned to the downside.
The gator oscillator is a powerful tool that resembles the Alligator, so for the ones of you that need more details when it comes to how to trade binary options based on the Alligator oscillator, just visit the dedicated educational project we have hear one our Binary Options Academy projects list.
The Metatrader, the most popular trading platform, is offering the oscillator under the Insert tab, and then choosing from the Bill Williams indicators the Gator Oscillator a popup window will appear on the screen. Under the parameters we have nothing but the same variables like on the Alligator indicator: jaws, teeth and lips and the standard or default period is 13, 8 and 5 for jaws, teeth and respectively the lips.
What is different here is that the Gator is offering the periods shifted 8, 5 and 3 periods, in order to see if the candles that are projected will have in the end the same color or a different one. The default colors are the classical red and green for bearish or bullish price interpretation.
After the indicator is plotted on the screen it can be seen that it is travelling between negative and positive values and the zero level is implicitly shown. The candles on the oscillator have different values and one candle can be half green and half red, or just a plain color.
Using the Volatility
What is really interesting about the Gator oscillator is the fact that it can be used as a volatility index as well in the sense that the bigger the distance the candles are traveling from the zero level, the bigger the volatility in the markets. This is a valuable information as it allows trading binary options with a different perspective and different types of options can be used based on the volatility degree a market has.
For example, if levels on the Gator oscillator are closer to the zero level for a prolonged period of time, it means ranges are in place and trading one touch options is recommended rather than high/low options. However, even high/low options can be traded but only using a separate oscillator and looking for divergences or bullish or bearish reversal patterns in oversold or overbought territory.
On the other hand, if the candles in the Gator indicator are drifting away from the zero level it signals a strong level of volatility in markets and we should look for trading with a bigger expiration date as an impulsive move most likely started, or at least an aggressive zigzag or zigzag family pattern is underway.
Some traders are using the different colors in one candle for trading a call or a put option but in reality there is no proof that such a strategy works.
What does work though is to trade call options with full green candles when volatility reaches higher levels and put options with full red candles when volatility reaches higher levels as well. For that, there is the need to identify higher volatility levels.
Finding the Perfect Striking Prices
The way to solve this issue is to look back in time and see what are the most common distances the oscillator is traveling when markets are moving, and edit the indicator in such a way that it is showing two lines at those levels. The lines are there to stay so for future price action and options that are supposed to be traded one should use these levels to trade a put option when the line above zero is being touched but only when the first complete red candle is being plotted by the Gator indicator.
The opposite is true in the case the oscillator is moving to the lower level that indicate volatility only in this case one should trade call options on the first green candles that the Gator indicator is showing.