The legendary trader Bill Williams developed the Williams Alligator indicator three decades ago in 1995. The indicator is quite popular among traders. The Williams Alligator indicator helps to discover the absence of a trend, a trend that is beginning to form and when markets. This information can help traders to decide the entry and exit of the market. 

In This Article – 

What is Williams Alligator? 

How to analyze the chart using Williams Alligator?

Category – Trend

Type – Lagging

What is Williams Alligator? 

The Williams Alligator indicator is a trend-following indicator. It works behind the concept that financial markets and individual stocks are found to be trending at a lower rate than sideway ranges. It makes use of smoothed moving averages to analyze market trends. The indicator was conceptualized with an idea that both institutions and individuals can generate more profit when the market is trending strongly. 

Calculations

SUM1 = SUM (Close, n) 

SMMA = SUM1 /n

Subsequent values are as under:- 

PREV SUM = SMMA(i – 1)* n 

SMMA(i) = (PREV SUM – SMMA(i – 1) + Close(i))/n

Where:- 

SUM1:- The sum of closing prices for n amounts of periods. 

PREV SUM: - The smoothed sum of the previous bar. 

SMMA1:- The smoothed Moving Average of the first bar. 

SMMA(i):- The smoothed Moving Average of the current bar (not including the first bar) 

Close (i):- The current closing price 

n:- The chosen smoothing period 

The three moving averages consist of the Jaw, Teeth, and Lips Alligator, opening, and closing in reaction to evolving trends and trading ranges: 

Jaw (blue line):- It starts with the 13-bar SMMA and is smoothed by eight bars on subsequent values. 

Teeth (red line):- It starts with eight-bar SMMA and is smoothed by five bars on subsequent values. 

Lips (green line):- It starts with the five-bar SMMA and is smoothed by three bars on subsequent values. 

How to analyze the chart using Williams Alligator?

When traders make the use of an Alligator indicator, they shall observe three key pieces of information. They can be used as a part of their trading strategy. Let’s go through it:- 

Sleeping Alligator

There may be a situation where green, red and blue lines come close to each other or are intertwined. This signals that the market lacks a trend. 

Awakening Alligator 

Red and blue moving averages are going in the same direction and at the same time, the green moving average passes through them. All three of them end up moving in the same direction. This is an indication that the trend is about to formulate. 

Hungry Alligator

When the green line is above the red line and the red line is above the blue line, this indicates an uptrend. And in case the order is reversed (blue top, red middle, green bottom), the market indicates a downtrend. On the expansion of the line, it confirms the trend. 

Chart 1:- https://www.ifcmarkets.co.in/uploads/docs/Alligator-Chart_EURUSD.jpg