The Alligator indicator helps you identify the trend: its direction and strength. The simplicity of the indicator is just awesome, because it is consisted of three lines:
Green: the SMA of the high and low price from the last 13 periods, time-forwarded by 8 bars.
Red: the SMA of the high and low price from the last 8 periods, time-forwarded by 5 bars.
Blue: the SMA of the high and low price from the last 5 periods, time-forwarded by 3 bars.
These three line for the Alligator’s mouth: green – lips; red – teeth; blue – jaws.
The Alligator indicator is actually three moving averages, so you can use them as either support or resistance levels, which are both strong levels. However, the beauty of this Williams’ indicator is different.
You can easily define the direction and the strength of the trend, if you take a look at the Alligator’s mouth. If the lines are arranged in the following order: green (bottom), red (middle), blue (top), and then we have a down trend; if the trend is upwards – green (top), red (middle) and blue (bottom). The closer the Alligator’s lines move, the weaker the trend gets and vice versa. The most important element here comes when the lines come closer and closer to each other or even overlay. This happens that the Alligator is “sleeping” and orders should NOT be placed. When the Alligator is sleeping, the market has no trend, but you have to stay alert, because the Alligator will wake up and it will be hungry. When the Alligator is hungry, it opens its mouth widely; when the Alligator is well fed, it goes back to sleep. This metaphor means that, if the market hasn’t got a trend or it has a weak one, then you should watch for a strong movement either upwards or downwards. You will be able to pick up the signals by the Alligator indicator’s lines. However, you already know that you have to double-confirm your signal with other indicators, that is why we recommend the Elliott wave indicator.
If we have an Alligator that shows down-trend and the price is moving beneath the green bar (lips), then we have a strong buy signal and vice versa. When the price breaks the green line, then this could indicate a possible trend reversal, but this is inconclusive and you need additional indicators to confirm.The Fractal Indicator Gator Oscillator
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