Free Williams Alligator 24.02 vl5

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How the Williams Alligator Indicator Works

The Alligator indicator uses three smoothed moving averages, set at five, eight, and 13 periods, which are all Fibonacci numbers. The initial smoothed average is calculated with an SMA, adding smoothed averages that slow down indicator turns.

Calculating the Alligator Indicator

SMA:

• SUM1 = SUM (CLOSE, N)
• SMMA1 = SUM1/N
• Subsequent values are:
• PREVSUM = SMMA(i-1) × N
• SMMA(i) = (PREVSUM-SMMA(i-1)+CLOSE(i))/N

Where:

• SUM1 - the sum of closing prices for N periods;
• PREVSUM - smoothed sum of the previous bar;
• SMMA1 - smoothed moving average of the first bar;
• SMMA(i) - smoothed moving average of the current bar (except for the first one);
• CLOSE(i) - current closing price;
• N - the smoothing period.

How the indicator is calculated is important for understanding the inner workings of the indicator. Luckily, the calculation is not required in practice. The alligator indicator can be added to your charts from the indicator list in your charting or trading platform.

The three moving averages comprise the jaw, teeth, and lips of the alligator, opening, and closing in reaction to evolving trends and trading ranges:

• Jaw (blue line): Starts with the 13-bar SMMA and is smoothed by eight bars on subsequent values.
• Teeth (red line): Starts with the eight-bar SMMA and is smoothed by five bars on subsequent values.
• Lips (green line): Starts with the five-bar SMMA and is smoothed by three bars on subsequent values.

Williams invoked barnyard imagery to describe the indicator, saying "even a blind chicken will find its corn if it is always fed at the same time … it took us years but we have produced an indicator that lets us always keep our powder dry until we reach the blind chicken's market."1 

Trading With The Alligator Indicator

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 down through the other lines signals a short sale opportunity, while crossing upward signals a buying prospect. Williams refers to the downward cross as the alligator "sleeping" and the upward cross as the alligator "awakening."2 

The three lines stretched apart and moving higher or lower denote trending periods in which long or short positions should be maintained and managed. This is called the alligator "eating with mouth wide open." Indicator lines converging into narrow bands and shifting toward a horizontal direction denote periods in which the trend may end, signaling the need for profit-taking and position realignment. This indicates the alligator is "sated."

The indicator will flash false positives when the three lines repeatedly crisscross each other due to choppy market conditions. According to Williams, the alligator is "sleeping." You're to remain on the sidelines until it wakes up.2 This exposes a significant drawback of the indicator because many awakening signals within large ranges will fail, triggering whipsaws.