How Alligator Indicator works
This indicator tool is comprised of three smoothed moving averages:
- The Blue line (resembling the jaw) is a 13-period smoothed moving average turned into the future by 8 bars;
- The Red line (resembling the teeth) is an 8-period smoothed moving average shifted into the future by 5 bars;
- The Green line (resembling the lips) is a 5-period smoothed moving average shifted into the future by 3 bars.
If the three averages are twisted together to form a narrow range, the Alligator is interpreted to be in rest mode. The farther the standards are, the faster the price shift occurs.
When the averages are continually taking the upward direction (which means the green line goes first, followed by red, then blue), it implies an uptrend to occur, which can be deduced as the opportune time to buy.
When the averages are in the reversed order, it suggests that there will be a downtrend which gives traders the hint to sell.
The average price of the bar is the gauge of the moving average of the Alligator indicator. The blue line works with a 13-period moving average shifted forward by 8-bars. The red line, meanwhile, revolves with an 8-moving average shifted forward by five bars while the green line operates with a 5-period moving average shifted forward by 3 bars.
MMEDIAN PRICE = (HIGH + LOW) / 2
ALLIGATOR’S JAW = SMMA (MEDEANPRICE, 13, 8)
ALLIGATOR’S TEETH = SMMA (MEDEAN PRICE, 8, 5)
ALLIGATORS LIPS = SMMA (MEDEAN PRICE, 5, 3)