How To Use Alligator Indicator is part of the technical analysis and ensures that you have the ability to recognize a trend.
Alligator Trading Method
This is very interesting, since these are the moments you can take position. Due to the trends you can discover using the alligator indicator it is possible to make a profit with a little help of long or short positions in a certain discovered effect.
How to spot trends
About 70 % of the time there is not a trend in stocks and bonds. It is therefore very interesting to identify trends and thus to ensure that you can catch them to make a little profit. The Alligator indicator can be used to search a market for the presence of trends. When the alligator indicator show no trend at all, just hop on to the next market.
Tim Williams Alligator indicator consists of three lines. In the figure below is a screenshot of the EUR/USD rate with the indicator below it.
In short, around 9:20h the alligator’s mouth is closed and there is no trend at all. But after that, say starting at 9:20:30h the mouth opens and the trend is rising according to the light blue line which represents the currency rate for the EUR/USD.
The Alligator indicator makes use of three different values, in the form of a red, a green and a blue line. Together they provide a complete picture regarding the presence of any trend . The blue line is also called the jaw of the Alligator and represents an average over 13 periods. This is pushed forward 8 periods, giving a first indication of the development of the effect .
It is also important to take notice of the red line, since these are the teeth of the Alligator. This is an average over eight periods, with five periods in advance. It is important to keep an eye on the developments of the lines compared with each other.
Third, there is a green line present within the Alligator indicator. This line represents the lips of the crocodile and returns the average of the last five periods. These three periods are pushed forward and ensure that a complete picture regarding the development is visible.
Are the jaws, teeth and lips ‘closed’? Then there is no presence of a trend. The longer this takes, the greater the trend will eventually be!
Position taking and closing
Once the three lines move away from each other, there is a yawning alligator. This is the time to take a position in since there is a trend in the point of development state . Then, the trend will continue and it is equally possible as an investor to make a profit. Are the lines getting back together? Then this is the end of the trend. It is time to close the position, to ensure that you can get out in time.
Alligator indicator – Summary
Summarizing, the Williams Alligator Indicator is a combination of balance lines (e.g. moving averages) that use fractal geometry and nonlinear dynamics.
- The blue line (the alligator’s jaw) is the Balance Line for the timeframe that was used to build the chart (13-period smoothed moving average, moved into the future by 8 bars)
- The red line (the alligator’s teeth) is the Balance Line for the value timeframe of one level lower (8-period smoothed moving average, moved by 5 bars into the future);
- The green line (the alligator’s lips) is the Balance Line for the value timeframe, one more level lower (5-period smoothed moving average, moved by 3 bars into the future).
Lips, Teeth and Jaw of the Alligator are showing the interaction of the different time periods of the rate of an asset. As clear trends can be seen only 15 to 30 per cent of the time, it is essential to follow them and refrain from working on markets that fluctuate only within certain price periods.
When the Jaw, the Teeth and the Lips are closed, that means the Alligator is going to sleep or is sleeping already. As it sleeps, it gets hungrier and hungrier — the longer it will sleep, the hungrier it will wake up. The first thing it does after it wakes up is to open its mouth and yawn. 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. Having eaten enough to feel full, the Alligator starts to lose the interest to the food/price (Balance Lines join together) — the time to fix the profit is before the lines get back together!
Why You Should Use The Alligator Indicator
Alligator trading is not a difficult system to learn. But the downside is, just like with most other indicators, you have to stay on top of it to close the position before the alligator indicator closed its mouth. If you wait to long the profit you made will increase as the lines are getting together again, but I think you already understood that after reading this alligator indicator blog post. 🙂
An explainatory video ont he Alligator Indicator: