Alligator indicator

The alligator indicator consists of three lines. They are moving averages with various parameters.

The first line, or the chap of the alligator, is a line of balance (moving averages) to the considerable period. It is used for the chart construction:

  • Jaw – Blue Line - 13 period smooth shifting average, moved on 8 bars to the future.
  • Teeth – Red Line - 8 period smoothed shifting average, moved on 5 bars to the future.
  • Lips – Green Line - 5 period smooth shifting average, moved on 3 bars to the future.



How does one interpret the lines? When all of the lines are close together it means that the "alligator" is sleeping, and the more it sleeps (the longer the lines are close) the hungrier it gets. Of course, when it wakes up after a long sleep, it is very hungry and starts "hunting” for food (price) until it is full. As soon as it happens, it loses interest in food (price), and then the balance lines meet at the same point. This is when you should fix your profit by closing all positions and then wait until the alligator awakes again.


Hence:
  • When the indicators lines are close together, the Alligator is said to be sleeping so do not trade.
  • Traders should buy when the Alligator Indicator shows the Lips above the Teeth, and the Jaws are below the Teeth.
  • Traders should sell when the Jaws are above the Teeth, and the Lips are below the Teeth.

The calculation takes the average price over the time period = (maximum + minimum) / 2