Mastering Market Trends with the Williams Alligator

What is the Williams Alligator?

The Williams Alligator is a technical analysis tool created by trader Bill Williams. The Alligator consists of three smoothed moving averages, which are used to determine market trends and predict future price movements.

The three lines of the Alligator are named: the jaw, teeth, and lips. The jaw line is the blue line, which is the 13-period smoothed moving average, shifted 8 bars into the future. The teeth line is the red line, which is the 8-period smoothed moving average, shifted 5 bars into the future. The lips line is the green line, which is the 5-period smoothed moving average, shifted 3 bars into the future.

A Simple Strategy Using the Williams Alligator

One strategy using the Williams Alligator is called the "Trends and Reversals" strategy. This strategy uses the Alligator to identify trends and reversals in the market and utilizes other indicators to confirm the signals.

To use this strategy, traders first look for a clear trend in the market, as indicated by the Alligator's three lines being mouth open. If the jaws, teeth, and lips are moving in the same direction (up or down), this can indicate a strong trend. If the three lines are moving sideways and close to each other, the market is potentially in a range and gearing up for a reversal or continuation.

Once a trend has been identified, traders look for a reversal signal. This could be a crossover of the teeth and lips lines or a change in the direction of the jaw line. Once a reversal signal is identified, traders can use other indicators, such as the Relative Strength Index (RSI) or the Moving Average Convergence Divergence (MACD), to confirm the signal and enter a trade.

Overall, the Williams Alligator is a powerful tool for technical analysis, and the strategy listed above is just one of many ways that traders can use it to identify trends and make trades.