Alligator Indicator

The Alligator Indicator is an excellent technical indicator for forex traders, even if it is one of the most basic. In fact, the popular Alligator Indicator is nothing more than three smoothed moving averages, but the Alligator’s ability to find winning trades is second to none.

Much like any other alligator, the Alligator Indicator operates on three important pieces:

1. Jaws – The Jaws of the Alligator are made of a 13-period simple moving average moved right 8 periods.
2. Teeth – The Teeth of the Alligator are comprised of a single 8-period simple moving average moved right 5 periods.
3. Lips – The Lips of an Alligator Indicator are formed with a single 5-period simple moving average shifted right 3 periods.

When you enable the Alligator Indicator in Metatrader 4 (MT4 trading platform for forex), the Alligator Indicator looks like this:

For reference, the jaws are blue, the teeth are red, and the lips are naturally green. If at any point you can’t remember which is which, placing your cursor over the any of the Alligator Indicator’s moving averages will identify the line. The following text box will appear:

How to Trade Using the Alligator Indicator

Trading the Alligator Indicator is actually quite simple. The basic idea is that the indicator shows when to buy and sell based on the order of the moving averages.

Bullish Order	Bearish Order
Lips	Jaws
Teeth	Teeth
Jaws	Lips

Traders should buy a forex pair only when the Alligator Indicator shows the lips above the teeth, which are above the jaws. Traders should sell a forex pair when the Jaws are above the Teeth, which are above the Lips.

The distance between each part of the Alligator is important, as well. When the indicators lines are close together, the Alligator is said to be sleeping. Only at the point at which the three diverge and find an order should forex traders begin to trade its signals.

The longer the Alligator sleeps, the bigger the next movement to up or down, as the Alligator works up a large appetite for pips while it sleeps. The Alligator is somewhat related to the Bollinger Bands in this way—the longer the indicator stays tight, the stronger the next market movement.

Tips for Trading

The Alligator performs best on pairs where traders are active and trends are common. The EUR/USD pair would be an excellent example of one such currency pair.

Longer timeframes are a specialty for this indicator, which can seemingly sort through the noise to find profitable trades. In the short-term charts where currency pairs show very little volatility, the Alligator’s teeth, jaws, and lips are quick to change order, and signals are “iffy,” at best.

Please Read About Average Directional Index {ADI}