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Understanding the Alligator Indicator for MetaTrader 5

Mike • 2010-01-26 20:03
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The Alligator Indicator is a unique technical tool that combines Balance Lines (or Moving Averages) using fractal geometry and nonlinear dynamics. If you’re looking to dive deeper into this concept, check out B. Williams' book: "New Trading Dimensions: How to Profit from Chaos in Stocks, Bonds and Commodities".

Key Components of the Alligator Indicator

  • The Blue Line (Alligator's Jaw): This is the Balance Line for the timeframe used to create the chart, calculated as a 13-period Smoothed Moving Average (SMA), shifted 8 bars into the future.
  • The Red Line (Alligator's Teeth): This represents the Balance Line for a timeframe one level lower, calculated as an 8-period SMA, shifted 5 bars into the future.
  • The Green Line (Alligator's Lips): This is the Balance Line for the next lower timeframe, calculated as a 5-period SMA, shifted 3 bars into the future.

The interaction between the Lips, Teeth, and Jaw of the Alligator provides insight into different time periods. Remember, clear trends appear only 15% to 30% of the time, so it’s crucial to follow them and avoid getting caught up in sideways markets.

When you notice the Jaw, Teeth, and Lips are closed or tangled, it indicates that the Alligator is either asleep or getting ready to wake up. The longer it sleeps, the hungrier it becomes. When it finally awakens, it opens its mouth and yawns, sniffing out potential trades—whether it’s a bullish or bearish opportunity. After chowing down on enough pips, the Alligator loses interest in the price (the Balance Lines converge), signaling it’s time to lock in profits.

Alligator indicator

Alligator Indicator

How to Calculate the Alligator Indicator

Calculation:

MEDIAN PRICE = (HIGH + LOW) / 2

ALLIGATOR'S JAW = SMMA (MEDIAN PRICE, 13, 8)

ALLIGATOR'S TEETH = SMMA (MEDIAN PRICE, 8, 5)

ALLIGATOR'S LIPS = SMMA (MEDIAN PRICE, 5, 3)

Where:

  • MEDIAN PRICE - the average price;
  • HIGH - the highest price of the bar;
  • LOW - the lowest price of the bar;
  • SMMA (A, B, C) - Smoothed Moving Average. A is the data to smooth, B is the smoothing period, and C is the future shift. For instance, SMMA (MEDIAN PRICE, 5, 3) calculates the smoothed moving average based on the median price, with a smoothing period of 5 bars and a shift of 3.
  • ALLIGATOR'S JAW - Alligator's jaws (the blue line);
  • ALLIGATOR'S TEETH - Alligator's teeth (the red line);
  • ALLIGATOR'S LIPS - Alligator's lips (the green line).

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