How to use alligator indicator
Alligator indicator consists of 3 Moving averages:
Alligator’s jaws (blue line) – 13-period Simple Moving Average built from (High+Low)/2, moved into the future by 8 bars;
Alligator’s teeth (red line) - 8-period Simple Moving Average built from (High+Low)/2, moved by 5 bars into the future;
Alligator’s lips (green line) - 5-period Simple Moving Average built from (High+Low)/2, moved by 3 bars into the future.
In order to add Alligator indicator to Metatrader 4 chart:
Go to Menu -> Insert -> Indicators -> Bill Williams -> Alligator.
How to trade with Alligator Indicator
Alligator indicator helps to determine the presence and absence of a trend as well as its direction.
For an uptrend to be true and valid 3 lines (Jaws, Teeth and Lips) of Alligator indicator must be laid out appropriate way: Jaws at the bottom (blue), then teeth (red), then lips (green) on top.
Opposite for downtrend: jaws on top (blue), teeth (red), then lips below (green).
lines are intertwined or laid in the wrong order or are moving close together as one, it means that Alligator is sleeping with its mouth closed. Traders should not open new trades.
As Alligator sleeps it becomes hungry. The longer he sleeps the hungrier he becomes – the longer the market stays without a trend, the more vigorously it will break into a new trend.
When the trend starts, Alligator wakes up and opens it mouth (3 lines get into order and start to move apart) – this is the time to start trading with a trend.
When Alligator is full and happy, he closes his mouth and goes to sleep again – the 3 lines move closer together or intertwine again.
Elliott wave traders can use Alligator as a helping indicator to identify impulsive and corrective waves: when price trades outside Alligator’s mouth, the impulsive wave is forming, when price trades inside Alligator’s mouth, the corrective Elliott wave is forming.
Don't feed the Alligator when it sleeps!
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