What can you say about an indicator called alligator?
What if we told you that there is an indicator called alligator? Bill Williams created this price indicator. They can identify current price trends and also their primary direction. Due to this reason, traders use this indicator when they make moves that are opposite to the identified trends. Is it not awesome? This article will explain more about it.
The jaw, teeth, and lips as balance lines or moving averages
Since this indicator was derived from the animal alligator, Bill Williams also named the moving averages from the alligator’s body parts. Moving averages are also known as balance lines. Furthermore, alligator’s balance lines are three, and their names are jaw, teeth, and lips. The technical indicator’s jaw, teeth, and lips use fractal geometry and dynamics that are nonlinear. The closes to the price action is the green line. The median average is the red line, and the farthest one is the blue line. These three lines are only defaults set by Bill Williams, but a trader can still customize this according to their trading style.
Let us learn more about the moving averages.
Let us start with the first balance line is the alligator’s jaw which is also known as the blue line. It is the time frame’s balance line. The chart was created using this moving average. It has 13 periods of smoothed average and eight periods to the right.
The following balance line is the “alligator’s teeth,” also known as the red line. It is the value time frame’s balance line, and it is one level lower. It has eight periods of smoothed average and five periods to the right.
Finally, we also have the alligator’s lips, also known as the green line, the value time frame’s balance line. It is another level lower. It has five periods of smoothed average and three periods to the right.
These three balance lines represent varieties of time interaction. An alligator indicator indeed identifies a trend, but it is only visible for at least 15 to 30 percent of the time. So, a trader must keep track of them and not focus on fluctuating markets with specific price periods.
The patterns of the alligator
The alligator indicator also made a connection with the market and trends with the real alligator animal. Read more to understand this statement further. Here are the patterns of an alligator indicator:
- The sleeping alligator. Just like how an alligator sleeps or getting ready to sleep, its jaw, teeth, and lips are intertwined and closed. The longer the slumber time, the hungrier it gets when it wakes up.
- The alligator is up. Upon waking up, the alligator yawns and opens its mouth.
- The eating alligator. The alligator is a carnivore. It starts to hunt bears and bulls to eat.
- The alligator is full. The alligator became too full to have more interest in food. Let us think of food as a representation of price. Now, the jaw, teeth, and lips intertwine again. During this time, a trader can profit.
Here are the default/ generic parameters
Below is a quick guide on the default parameters
- How many periods do we use for a jaw? 13
- How many periods are needed to use teeth? 8
- How about the number of periods to use for lips? 5
- Also, how many periods are needed to shift for jaw, teeth, and lips? IT is 8, 5, and 3, respectively.