The Alligator Indicator, developed by Bill Williams, is a powerful tool that helps traders identify the presence and direction of a trend by using three smoothed moving averages—commonly referred to as the jaw (blue line), teeth (red line), and lips (green line).
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These lines represent longer-term, medium-term, and short-term moving averages respectively. When the three lines are intertwined or close together, the alligator is said to be "sleeping," indicating a ranging or sideways market. However, when the lines begin to separate and fan out, it signals that the alligator is "awakening" and a strong trend may be developing.
Trading with the Alligator Indicator revolves around timing entries and exits based on these phases. A common strategy involves entering a long position when the lips cross above the teeth and jaw, indicating the beginning of a bullish trend. Conversely, a short position may be initiated when the lips cross below the other lines, signaling potential bearish momentum. Traders often wait for a clear separation between the lines to avoid false signals during the “sleeping” phase and use trailing stop-losses to protect profits as the trend matures.
For enhanced reliability, many traders combine the Alligator with other technical tools such as the Awesome Oscillator, RSI, or volume indicators. This multi-indicator approach can help confirm trend strength and filter out whipsaws. Additionally, observing price action around key support and resistance levels while the Alligator is active provides a more strategic layer to trading decisions. Ultimately, the Alligator Indicator is most effective when applied in trending markets, offering traders a visual framework for capitalizing on sustained momentum and avoiding the chop of consolidation.
Money Management:
It is important to follow up with this strict rule of investment:
If you have $100 in your account, each open position should be $5 tops
If you have $200 in your account, each open position should be $10 tops
If you have $500 in your account, each open position should be $25 tops
If you have $1,000 in your account, each open position should be $50 tops
If you have $2,000 in your account, each open position should be $100 tops
If you have $5,000 in your account, each open position should be $250 tops
We're currently in our 13th year helping traders become successful in the live markets so we know a thing or two about leveraging a small account into serious wins.
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Risk Disclaimer:
Trading options involves financial risk and may not be appropriate for all investors. The information presented here is for information and educational purposes only and should not be considered an offer or solicitation to buy or sell any financial instrument. Any trading decisions that you make are solely your responsibility. Past performance is not necessarily indicative of future results.
