Legendary trader Bill Williams, an early pioneer of market psychology, developed a number of original technical indicators in a career that spanned more than five decades.
The Alligator indicator uses three smoothed moving averages, set at 5, 8, and 13 periods, which are all Fibonacci numbers. The initial smoothed average is calculated with a simple moving average (SMA), adding additional smoothed averages that slow down indicator turns.
Three moving averages comprise the Jaw (blue), Teeth (red), and Lips (green) of the Alligator, opening and closing in reaction to evolving trends and trading ranges.
The three lines stretched apart and moving higher or lower denote trending periods in which long or short positions should be maintained and managed. This is referred to as the alligator eating with mouth wide open. Indicator lines converging into narrow bands and shifting toward a horizontal direction denote periods in which the trend may be coming to an end, signaling the need for profit taking and position realignment.
Works on any instrument and any timeframe.
REM Alligator Indicator - Bill Williams
// Alligator Blue Line - Jaw
// 13 bar smoothed average future 8 bars
SSMAblue = WilderAverage(close)
// Alligator Red Line - Teeth
// 8 bar smoothed average future 5 bars
SSMAred = WilderAverage(close)
// Alligator Green Line - Lip
// 5 bar smoothed average future 3 bars
SSMAgreen = WilderAverage(close)
RETURN SSMAblue COLOURED(0,0,255) AS"Jaw", SSMAred COLOURED(255,0,0) AS"Teeth", SSMAgreen COLOURED(0,255,0) AS"Lips"
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