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. His trend-following Alligator Indicator follows the premise that financial markets and individual securities trend just 15% to 30% of the time while grinding through sideways ranges the other 70% to 85%.
While pit traders of his era could profit in range-bound periods with swing and scalping techniques, he believed that individuals and institutions away from the exchanges had to book most of their profits during strongly trending periods. Williams invoked barnyard imagery to describe the indicator, noting “even a blind chicken will find its corns, if it is always fed at the same time…. it look us years but we have produced an indicator that lets us always keep our powder dry until we reach the blind chicken’s market.”
- The Williams Alligator indicator is a technical analysis tool that uses smoothed moving averages.
- The indicator uses a smoothed average calculated with a simple moving average (SMA) to start.
- It uses three moving averages, set at five, eight, and 13 periods. The three moving averages comprise the Jaw, Teeth, and Lips of the Alligator.
- The indicator applies convergence-divergence relationships to build trading signals, with the Jaw making the slowest turns and the Lips making the fastest turns.
The indicator applies convergence-divergence relationships to build trading signals, with the Jaw making the slowest turns and the Lips making the fastest turns. The Lips crossing downward through the other lines signals a short sale opportunity while crossing upward signals a buying opportunity. Williams refers to the downward cross as the alligator sleeping and the upward cross as the alligator awakening.
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Settings in the chart
Settings in Strategies
Since the Williams Alligator indicator consists of three separate components (Alligator Jaw, Alligator Teeth, Alligator Lips) each of which has its own parameters and values, in Strategy Builder the Williams Alligator is also divided into three indicators:
- Alligator Jaw
- Alligator Teeth
- Alligator Lips
All indicators can be used either together or separately with other indicators.