Alligator indicator – Outrageously simple and straightforward, as I would describe it. But the main thing is that it fulfills its function.
Alligator indicator invented by renowned trader, author of bestselling books such as “Trading Chaos” – Bill Williams. And I also recommend reading the following Forex books.
Bill Williams named the indicator lines quite figuratively. The indicator itself resembles the open mouth of an alligator and therefore:
- The blue line is called “Jaw” – it is a smoothed moving average (SMA) with a period of 13
- The red line is called “Teeth” – SMA with a period of 8
- The green line is called “Lips” – SMA with a period of 5.
Alligator indicator signals
1. Alligator spit – the lines are intertwined and very close to each other. This corresponds to the period of market consolidation. The longer the alligator sleeps, the more hungry it will wake up and the stronger the trend will be.
2. Possible emergence of a new trend occurs when the fluctuations of the moving averages increase and the distance between them begins to grow The alligator may wake up soon.
3. Alligator woke up and eats… During a trend, the mouth of an alligator is wide open and it eagerly satiates itself, and after that it loses interest in food and falls asleep again.
This is how Bill Williams colorfully describes the work of the indicator. In fact, the Alligator indicator simply visually represents an eternal cyclical process in the market: consolidation-trend-consolidation.
There should also be no problems with determining the direction of the trend. Where the alligator’s mouth is directed – the trend is also directed there. The same is with the strength of the trend: the wider the alligator’s mouth is open (the greater the distance between the indicator lines), the stronger the trend at the moment. If the lines converge, the trend is weakening and the alligator may soon fall asleep.
As it becomes clear, the alligator facilitates the visual perception of the chart, makes it easier to read. To use only the Alligator indicator to enter a position is a losing trade, because like any indicator, the alligator can also often give false signals and therefore it is imperative to use it together with other indicators or technical analysis techniques in order to filter false signals. Often one of the additional indicators is Fractal. In conjunction with fractals, the alligator gives us an easy trading strategy. Now that we know how the alligator indicator works, read the article Alligator and Fractals strategy.
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