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In this article I describe the Gator Oscillator and how it can be used as part of a pyramid entry trading system.

I show the results of a Gator trading strategy on the S&P500 Index from 2000-2015.

Pyramid Entry Systems

It is tough to find good trades. In most markets at most times there will only be a few really good trades.

One way that traders can increase their profitability is by increasing the position size when conditions are favorable. A pyramid entry system uses this approach by adding to a winning position.

The advantage of using a pyramid entry system is that  we do not have to risk everything on the initial trade entry. We can watch our trade and if it meets specific criteria we can add another position.

For most people adding to a winning position is hard. When a position moves in our favor we instinctively want to take our profits. Pyramiding forces us to be disciplined in our search for really good trades and ensure that we make a large profit when we do find a good trade.

The Gator Oscillator

The Gator Oscillator was developed by Bill Williams. I am a big fan of Bill Williams technical indicators and I like his thinking about trading the financial markets. If you are interested in learning more you can check out my previous post on the Awesome Oscillator and Acceleration Indicator .

The Gator Oscillator is shown here on the S&P 500 stock index.

The Gator expands when the market trend is strengthening (green bars) and contracts when the trend is weakening (red bars). Both long and short trades can be identified using the Gator Oscillator.

If you would like to discover more about the Gator and learn how to calculate it, I have an eBook 21 More Technical Indicators available in the Amazon Kindle Store.

One of the most interesting things about the Gator indicator is that it provides a system for increasing the size of our position.

The Gator Pyramid Entry System

In this simple trading strategy I am using the Gator Oscillator to enter trading positions. The Gator does not give us a directional bias so I am using a moving average as a direction filter. In this example I am only taking long trades.

I will test the strategy using a Tradinformed Excel Model. This models has been specifically set up to test a pyramid entry trading system. If you are interested in backtesting your own trading strategies have a look at the a page on Purchase Excel Backtest Spreadsheets .

The rules are:

• Trade Long when the Gator shows double green (green above and below the 0 line) and the price is above the 200 EMA.
• Add another position if the Gator shows another double green and the price is still above the 200 EMA. Up to a maximum of 3 positions.

In this example the Gator is above the 200 EMA and the first position is opened when the indicator switches from red to double green.

The second and third positions are added on the following 2 bars.

Video

I have recorded a YouTube video about this trading strategy. In the video I show how the number of positions and other variables can be altered and how they affect the profitability of the trading strategy.

Results of the Trading Strategy

Each position risks a maximum of 5% of the capital. If three positions are added this represents a maximum risk of 15%.