The Alligator Indicator (Williams Alligator): “Awakening the Alligator?”

The Williams Alligator is a technical indicator invented by legendary trader Bill Williams, inspired by observing the behavior of alligators and drawing parallels to market dynamics. This fascinating indicator can help you navigate the market and is one of the essential tools to know when learning about technical analysis. So, what is the Alligator indicator? How do you use the Alligator indicator in Forex trading? Let’s explore these questions with Forex

1. WHAT IS THE ALLIGATOR INDICATOR?

The Alligator Indicator is a market trend indicator classified as part of Bill Williams’ indicators, available on the MT4 trading platform.

1.1. The Alligator Indicator (Alligator FX)

The Alligator Indicator, also known as the Williams Alligator or the Crocodile Jaw Indicator, is used to identify market trends and determine the start and end of those trends.

Bill Williams observed that the behavior of an alligator opening its mouth is similar to the movement of fluctuating prices. Thus, he developed the Alligator Indicator to mimic this behavior and applied it to the market.

in this article.

Imagine the Alligator Indicator as an alligator, consisting of three lines:

• 1 – The 13-day SMA (Simple Moving Average) with a shift setting of 8 (blue line)
• 2 – The 8-day SMA with a shift setting of 5 (red line)
• 3 – The 5-day SMA with a shift setting of 3 (green line)

Typically, when there is no clear trend, these three lines will converge, resembling an alligator sleeping. Then, when the alligator wakes up and feels hungry, the three lines begin to separate, just like the alligator opening its mouth.

With this awakening, we can anticipate the start of a significant trend, either upwards or downwards.

1.2. What Does the Williams Alligator Indicator Represent?

The Alligator Indicator is a trend-following tool consisting of three smoothed moving averages, which Bill Williams referred to as balance lines. Each line represents a part of the alligator’s mouth:

• Alligator’s Jaw (blue line): The slowest moving average, a 13-period SMA shifted forward by 8 periods.
• Alligator’s Teeth (red line): The intermediate moving average, an 8-period SMA shifted forward by 5 periods.
• Alligator’s Lips (green line): The fastest moving average, a 5-period SMA shifted forward by 3 periods.

1.3. Formula and How to Read the Alligator Indicator

The Alligator Indicator combines three simple moving averages (SMA), each with a unique shift to represent different timeframes in the future.

Calculation Formula:

• 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)

The interaction between the Lips, Teeth, and Jaw lines reflects market trends over distinct periods. Since clear trends typically occur only 15–30% of the time, traders must closely monitor these lines and avoid entering trades during short-term fluctuations.

1.4. Significance of the Williams Alligator Indicator

Bill Williams, a legendary trader in forex, financial markets, and stocks, was also an analyst who conducted extensive research in trading. A key point in his approach is the unpredictability of the market, forming the foundation for his technical indicators.

After developing several trading indicators, Williams introduced the Alligator Indicator, embodying his philosophy of simplicity in trading. His technical analysis focuses on observing current market price behavior rather than overcomplicating strategies.

2. SETTING UP THE ALLIGATOR INDICATOR

From the previous sections, you now understand the basics of the Alligator Indicator in forex trading. So, how do you set it up on TradingView or MT4?

2.1. Setting Up the Alligator Indicator on TradingView

Configuring the Alligator Indicator on TradingView is straightforward. On the chart of any currency pair, go to the toolbar and select “Indicators”. In the search bar, type “Alligator”, and the Williams Alligator Indicator will appear (see the image below).

You have successfully added the Williams Alligator Indicator to the TradingView chart.

2.2. Setting Up the Alligator Indicator on MT4

The Alligator Indicator is part of the Bill Williams indicator suite in MT4. To add it to your MT4 chart, follow these steps:

Step 1: Open the MT4 trading platform.

Step 2: On the toolbar, go to Insert → Indicators → Bill Williams → Alligator (as shown in the image below).

And here is the image of the Alligator Indicator displayed on MT4:

Now you have successfully added the Williams Alligator Indicator to your MT4 trading platform.

3. HOW TO “WAKE UP” THE ALLIGATOR

When the three lines of the Alligator Indicator converge or intertwine, it signals that the market’s “Alligator” is sleeping. The longer it sleeps, the hungrier it becomes. Therefore, this is not the ideal time to make trading moves.

In practice, the first thing the alligator does after waking up is to open its mouth and yawn. Once it smells food, it begins its hunting activity. This is the perfect time for traders to start trading in the market.

• If the Alligator’s Jaw opens upwards: The market is trending upward → A strong signal to enter a BUY trade.
• If the Alligator’s Jaw opens downwards: The market is trending downward → A strong signal to enter a SELL trade.
• Once the alligator’s hunger is satisfied, the Alligator Indicator lines will start to converge again. This signals the end of the trend, and traders should wait for the next opportunity.

To better understand this, you can observe a practical example below:

The chart above shows different market phases. The pink rectangular box represents a sideways or ranging market zone. You can observe that in this zone, the three lines of the Alligator Indicator are tightly connected and converge together, which simply marks the period when the Alligator is “sleeping.”

4. ALLIGATOR STRATEGY

So, how can the Alligator Indicator be used in a Forex trading strategy?

4.1. Strategy with the Alligator to Identify Trends

In reality, the Alligator Indicator, which consists of three moving averages, is not only suitable for trend identification but also effective when used independently.

The Alligator trading strategy involves the crossing of the 5-period SMA (green line) above the 8-period SMA (red line), and both of these lines crossing above the 13-period SMA (blue line). When this crossing happens in this direction, it is considered a bullish signal. Conversely, if the crossing happens in the opposite direction, it signals a potential downtrend.

4.2. Strategy Combining Alligator with the AC Indicator

The idea behind combining the Alligator Indicator with the AC (Awesome Oscillator) Indicator is to leverage the trend-following power of the Alligator with the oscillating power of the AC.

BUY Position

A buy position is established when the red SMA line of the Alligator crosses above the green SMA line, and the AC bars turn green as well. This combination indicates a strong upward trend and signals a buying opportunity.

SELL Position

You can enter a SELL trade with the following conditions:

• The AC indicator bars are red.
• The red SMA line of the Alligator crosses below the green SMA line, followed by a candle breaking downwards from the red SMA line.

This combination suggests a strong downtrend and signals a selling opportunity.

You can observe the example below:

5. SUMMARY

In this article, Forex has introduced the Alligator Indicator, explained how to set it up on both TradingView and MT4 platforms, and provided traders with effective strategies to trade using this popular indicator. We hope that the insights shared here will be helpful in your Forex trading journey.

Wishing you success in your trading career!