Alligator

    By
    Andrey Orlov
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    1031

    The alligator is an indicator that consists of three smoothed moving averages with different time periods.

    The alligator’s three smoothed moving averages (SMA) are:

    • Blue or “Jaw”: 13 period SMA, moved 8 periods into the future
    • Red or “Teeth”: 8 period SMA, moved 5 periods into the future
    • Green or “Lips”: 5 period SMA, moved 3 periods into the future

    The name alligator comes from the animal symbol that is used to describe the indicator and the way it is traded. In the picture below, you can see an example of the alligator indicator on a price chart.

    It was developed to present a metaphor to help traders identify the signals. It is as follows:

     

    (1) From top to bottom the lines are in the order green, yellow and blue. This means that the alligator opened its mouth to eat and the price is in an uptrend.
    (2) The lines are all twisted together, meaning that the alligator is sleeping and doesn’t want to be fed: you should be out of the market by that time.

    (3) From top to bottom the lines are in the order blue, yellow and green. That means the alligator has woken up and opened its mouth again to eat, but this time it is a downtrend.

    Therefore, you enter the market when the alligator opens its mouth and you exit the market when it is sleeping. Note that you should never enter the market while the alligator is sleeping because it doesn’t like being fed while asleep. The longer the alligator sleeps the hungrier he normally is, which means that after a long period of twisted lines, the outbreak into a new trend might be more extreme.