What is Alligator?
Bill Williams introduced the Alligator indicator in 1995. The name “Alligator” is a metaphor used for this indicator. It consists of three lines, overlaid on a pricing chart, that represent the jaws, the teeth and the lips of the beast, and was created to help the trader confirm the presence of a trend and its direction.
The Alligator indicator can also help traders designate impulse and corrective wave formations, but the tool works best when combined with a momentum indicator. The “traits” of the Alligator are numerous. If the three lines are entwined, then the Alligator’s mouth is closed and he is said to be sleeping. As he sleeps, he gets hungrier by the minute, waiting for a breakout from his slumber when he will eat. When the trend takes shape, the Alligator wakes and starts eating. Once satiated, the Alligator closes his mouth once again and goes to sleep.
The Alligator indicator is common on Metatrader4 trading software, and the calculation formula sequence involves these straightforward steps:
1. The Alligator’s Jaws, the “Blue” line, is a 13-period Smoothed Moving Average, moved into the future by 8 bars;
2. The Alligator’s Teeth, the “Red” line, is an 8-period Smoothed Moving Average, moved by 5 bars into the future;
3. The Alligator’s Lips, the “Green” line, is a 5-period Smoothed Moving Average, moved by 3 bars into the future.