Alligator Oscillator Forex indicator
Alligator Oscillator Forex indicator
Alligator Oscillator
Introduction
The Alligator
oscillator is very similar to the Gator oscillator which we have examined
previously in these pages. The difference between the two indicators lies
almost entirely in the presentation of data. While the Gator oscillator
presents any valid signals in a histogram below the price chart, the Alligator
chart provides the oscillators in a raw form so as to enable wider and deeper
analysis.
The Alligator
oscillator, like the Gator oscillator, was developed by Bill Williams.
The chart looks very
similar to a moving average chart, and that is what it is. The profitable phase
of the market action is thought to exist between two contractions of the
indicators. Every time the three components (jaw, teeth, lips) come together,
and the mouth closes, an opportunity to open or close a position is presented.
Trader lore states that the indicator emits correct signals about 30-50% of the
time.
Calculation
The Alligator indicator
is really a very simple tool once you understand what it is. Three smoothed
moving averages plotted on a price chart and shifted by a few bars into the
future create this indicator, and the slower and the less sensitive the moving
average is to market action, the further into the future it is shifted.
Jaw, or the blue line,
is the 13-period smoothed moving average shifted 8 bars into the future. It is
also the slowest indicator.
Teeth, or the red line,
is the 8-period smoothed moving average shifted 5 bars into the future.
Lips, or the black line
(although it is commonly depicted in green by charting software), is the
fastest 5-period smoothed moving average, moved 3 bars into the future.
As it us the case with
the Gator oscillator, the interaction between these three SMMA's determines the
trade signal.
Usage
This indicator is
constructed on the notion that each trend, and its phases (or mini-trends),
consist of waves that coincide with start, development, culmination and
exhaustion, akin to the logic behind the Elliot Wave Theory. Similar to the
Gator indicator, the four phases of the alligator's life must be identified.
Alligator Waking: When
the green, or black line falls above or below the blue line, (or when the teeth
rise above or below the jaw) after a period of contraction, the alligator is
said to be waking up. This is the typical indication of a beginning phase for a
trend.
Alligator Eating: At
this phase the mini-trend is well-established, and we see the teeth breaching
through the lips, and 'eating' signifying that the trend is soon to reach its
climax.
Alligator Sated: We now
see the teeth coming back or below the blue line, and the three lines beginning
to contract to a smaller area, as the price action decelerates, and the trend
has run its course.
Alligator sleeping: At
this phase the smoothed moving averages come together, or in more colorful
language, the mouth closes as the jaw, lips and teeth adhere to each other once
again. This phase signals that the current trend has exhausted itself at least
in its present configuration, and it is time to sit back and reevaluate the
situation.
Conclusion
Let's recall what the
alligator oscillator oscillator is. It is three smoothed moving averages drawn
together on a chart and shifted to the left a little with the purpose of
identifying profitable scenarios. As such, very little distinguishes it from a
standard moving average strategy, and the differences that exist do not
exceptionally favor this indicator.
The Alligator
oscillator is most suitable to a trending market. It can be used in shorter
timeframes in the context of an overarching range pattern, but it will surely
generate many false signals in a ranging market. The best indicators to
supplement it are support/resistance lines, or Fibonacci indicators to
determine price targets if you happen to be beginner. Just keep in mind that
trends are violent will easily invalidate any imaginary line on the charts,
however strong it may appear.
If you wish to use
moving averages in your trend analysis, make use of the alligator instead.
Otherwise, the ichimoku cloud, also covered on this site, may be a better
choice for greater clarity and depth of analysis.