Alligator Indicator
tl;dr
The Alligator Indicator helps you spot trends in the market by using three lines that represent the “jaw,” “teeth,” and “lips” of an alligator. When the lines are wide apart, the market is trending, and you can follow the trend. When the lines are crossing or close together, it suggests the market is flat, and it’s best to wait.
Definition.
A trend-following indicator that uses three smoothed moving averages to identify and follow trends.
Real-World Example.
The Alligator Indicator is like a “trend-following” tool that helps you figure out when to catch a stock’s price movement — kind of like waiting for the right moment to catch a wave while surfing.
Imagine you’re watching a stock’s price. The Alligator Indicator uses three lines (representing the jaw, teeth, and lips of the alligator) to show whether the market is in a strong trend or not. If the lines are wide apart, it means the market is trending, and you can “catch the wave” and follow the price direction. If the lines are bunched together, it suggests the market is flat, and there’s no clear trend, so it’s best to wait.
For example, if you see the lines of the Alligator Indicator (called the “jaw,” “teeth,” and “lips”) opening up and the price is moving up, that could be a sign that the stock is in an uptrend. On the other hand, if the lines are crossing each other or closing, it could mean the stock is in a sideways market, and you might want to avoid trading until the trend becomes clearer.
How to Use the Alligator Indicator.
- Add the Alligator Indicator to Your Chart: Open your stock chart and look for Alligator Indicator under the “Trend” or “Moving Averages” section. It usually includes three lines:
- Jaw (Blue Line): The slowest-moving line.
- Teeth (Red Line): A medium-speed line.
- Lips (Green Line): The fastest-moving line.
- Look for Trend Signals:
- Wide apart lines: When the lines are far apart, it means the market is trending, either up or down. This is a signal to follow the trend.
- Lines crossing each other: If the lines cross and are close together, it means the market is sideways, and there is no clear trend. It’s best to stay out of the market until the lines start to spread again.
- When the lips cross the teeth or jaw: If the green line (lips) crosses above the red line (teeth) and the blue line (jaw), this signals a potential buy opportunity. Conversely, if the lips cross below the teeth and jaw, it could be a sell signal.
- Use with Other Indicators: For better confirmation, combine the Alligator Indicator with other tools like the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD) to confirm whether the trend is strong.
