The Williams alligator indicator was introduced in 1995 by Bill Williams, an American trader and author of books about trading psychology, technical analysis, and chaos theory in the commodity, stock, and foreign exchange markets.
The alligator indicator is based on an argument that financial markets and individual assets trend just 15% to 30% of the time and this is where traders collect most of their profits.
The other 70% to 85% of the time, the assets are performing with very little price change or trends over a period of time.
The Williams alligator indicator is composed of three moving averages, set at 5, 8, and 13 periods, all Fibonacci numbers. This indicator is called the alligator indicator because these periods form the alligator’s opening and closing Jaw, Teeth, and Lips formations on the chart.
The Jaw line is blue (13 periods), the Teeth line is red (8 periods), and the Lips line is green (5 periods).
When the lines are intertwined and close together, this indicates very little price change, and the market is ranging, hitting the same highs and lows numerous times. This indication is when the alligator is sleeping.
Once the alligator starts to awaken, the lines separating and getting further apart from each other, this indicates a trend change. (Try out indicators on Tradingview.com)
Williams Alligator Indicator | Indicator Series Click To TweetTrend Forming
When the green line crosses over the red and blue lines, this signifies a possible trend is occurring. The red and blue lines will also start to turn in the direction of the green line.
This can indicate to be on the lookout for a trading opportunity.
Trend Formed And Direction Determined
If the green line crosses the red and blue lines and continues in an upward trajectory, with the red and blue lines following in the same direction, this indicates an uptrend in price and time to initiate buying.
If the green line crosses the red and blue lines and continues in a downward direction, with the red and blue following in the same direction, this indicates a downtrend in price and time to initiate selling.
Subscribe to tradingview.com for free to get great ideas from other traders.