Alligator Indicator

Alligator Indicator

Alligator Indicator

Those of you more familiar with the history of trading may know of Bill Williams, one of the most famous traders in the world and the person who introduced psychology to trading. The result of his research was a series of indicators he created, with most of them being still very popular today. The so-called Alligator Indicator is probably the most famous among them, so we took it upon ourselves to explain to you how it works. It is worth noting that some experience is required to correctly use this indicator, so if you’re a beginner we recommend you take a look at some of our more basic articles. But if you feel up to the task, keep reading!

Alligator Indicator | Basic features

If you have read our Bill Williams Indicators article, you know that the Alligator Indicator is based on the idea that the market spends most of its time in a relatively quiet state. Only about 15% to 30% of the time will the market trend. To help you determine when is the best time to take action, this indicator uses three smoothed moving averages: the one composed of 13 periods (also known as the Jaw of the Alligator), the one composed of 8 periods (the so-called Teeth) and the one with only five periods (commonly referred to as the Lips of the Alligator). These averages are the three lines you see when you start using this indicator on your chart and we will show you how they work in the following paragraph.

Alligator Indicator | How to use it

Before we start explaining how this thing works, we want to remind you that you may want to back the conclusions you get here with another tool, maybe MACD. The behavior of those three lines of the Alligator Indicator will show you what you need to do next. If they are a certain distance from each other and moving together upwards or downwards, then you want to pretty much leave things as they are, i.e. the trend you’re riding is going to last. When those three lines start converging, the trend is likely to end soon. However, if the Lips line crosses other two lines while traveling downwards, you will want to start investing in Put options, whereas you should be aiming at Call option if that same line crosses other ones while traveling upwards. And don’t worry; the lines are all in different colors, obviously, so you should easily notice any changes in their behavior.

Alligator Indicator | Conclusion

To conclude, Alligator Indicator is a great tool you can use to help you stay in touch with market trends and extract profit from them. It is composed of three lines that need to be carefully monitored if you are to make the correct decision. Of course, it’s always a good idea to seek verification from other indicators before you act. If you need to know more about them, our website has many more articles just like this one to help you find the perfect trading tool, so feel free to browse around a bit. Good luck!

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Author: Ben Prescott
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