The Alligator indicator was created by Bill Williams. It is used to confirm current price trends and their primary direction. Aside from identifying existing trends, experienced traders also use the Alligator indicator to enter counter-trend moves.
In principle, the Alligator technical indicator is a combination of Balance Lines (Moving Averages) that use fractal geometry and nonlinear dynamics.
The three Balance Lines are known as the Jaw, the Teeth, and the Lips.
The red line (Alligator’s Teeth) is the Balance Line for the value time frame of one level lower (8-period Smoothed Moving Average, moved by 5 bars into the future);
The green line (Alligator’s Lips) is the Balance Line for the value time frame, one more level lower (5-period Smoothed Moving Average, moved by 3 bars into the future).
Lips, Teeth, and Jaw of the Alligator show the interaction of different time periods.
As clear trends can be seen only 15 to 30 percent of the time, it is essential to follow them and refrain from working on markets that fluctuate only within certain price periods.
The Alligator is sleeping.
When the Jaw, the Teeth, and the Lips are closed or intertwined, it means the Alligator is going to sleep or is asleep already.
As it sleeps, it gets hungrier and hungrier.
The longer it will sleep, the hungrier it will wake up.
The Alligator wakes up.
The first thing it does after it wakes up is to open its mouth and yawn.
The Alligator eats.
Then the smell of food comes to its nostrils: flesh of a bull or flesh of a bear, and the Alligator starts to hunt it.
The Alligator suffers a food coma.
Having eaten enough to feel quite full, the Alligator starts to lose interest in the food/price (Balance Lines join together). This is the time to take profit.
- (13) – Number of Periods to use for Jaw
- (8) – Number of Periods to use for Teeth
- (5) – Number of Periods to use for Lips
- (8,5,3) – A shift for Jaw, Teeth, Lips