The Alligator Indicator is a fascinating tool in the technical analysis arsenal, blending balance lines—essentially Moving Averages—with principles of fractal geometry and nonlinear dynamics.
Breaking Down the Alligator's Lines
Jaw (Blue Line): This line represents the balance for the timeframe used to create the chart, utilizing a 13-period Smoothed Moving Average, shifted 8 bars into the future.
Teeth (Red Line): This line works on a slightly lower timeframe, employing an 8-period Smoothed Moving Average, moved 5 bars forward.
Lips (Green Line): This line reflects the lowest timeframe, using a 5-period Smoothed Moving Average, shifted 3 bars ahead.
These three components—the Lips, Teeth, and Jaw—illustrate the interactions across different timeframes. It's crucial to recognize that clear trends only emerge 15% to 30% of the time. Thus, it's wise to focus on these trends and steer clear of markets that oscillate within narrow price ranges.
When the Jaw, Teeth, and Lips come together or intertwine, it signals that the Alligator is either asleep or about to drift off. As it sleeps, it grows hungrier—meaning the longer it slumbers, the more ravenous it becomes. Once it awakens, its first action is to open its mouth and yawn, catching a whiff of potential trades: the bulls or bears. This is when the Alligator begins its hunt. After it’s had its fill, it loses interest in the price movements (the balance lines converge), indicating that it’s time to take profits.
Learn More About the Alligator Indicator
For an in-depth exploration of the Alligator, check out the Technical Analysis: Alligator.
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