Depending on a trader’s choice or preference, there are many different types of oscillators to choose from. They come in different names and each is backed up with a unique purpose and rationale. Each of the creators of an oscillator has a distinct vision and predetermines the characteristics of an oscillator, the possible applications it may be designated to, and the specific group it will fall on. One of the most popular types is the alligator oscillator.
Before going down to any specific type, there is a need to explain what an oscillator actually is, in a general sense. Each oscillator may be grouped in accordance to the oscillator’s price sensitivity.
- Many are very sensitive and react readily to any price action. One good example is the Williams Oscillator that reflects any market movement in the most accurate sense. However, under the default settings, the lines that represent the movements are not refined so that the ordinary trader can readily use the trend lines.
- On the other hand, some oscillators are less sensitive and do not exhibit much volatility. One such example is the RSI oscillator that is known to have greater precision in terms of signals and do not react readily to any price action.
- Lastly, there are oscillators that can only give values for limits to point out different overbrought or oversold levels. The signals are created via phenomenon of divergence and convergence.
With these simple explanations, it will be easier for you to understand what the alligator oscillator is. According to trading experts, the market has a natural tendency to stay at a certain status quo for a period of time. There are only short periods of time (approximately 15 to 30 percent of the time) wherein the market becomes volatile enough to create trends. This is the time wherein the traders refer back to trends especially if they are not there at the moment there are changes in the market.
By virtue of principle, the alligator oscillator was created based on the concept of moving averages or balance lines that utilize nonlinear dynamic and fractal geometry for analysis. In analyzing graphs, it might be helpful to refer back to the following:
- The Alligator’s Jaw is usually written in blue line. It is the balance line that refers back to the period of time that was used to create the chart. It is a smoothed moving average graph that consists of 13 periods, typically moved to the future by exactly 8 bars.
- The Alligator’s Teeth is usually written in red line. It is the balance line that pertains to the value timeframe of a level that is lower by one notch. It is a smoothed moving average graph that consists of 8 periods, typically moved to the future by exactly 5 bars.
- The Alligator’s Lips is usually written in green line. It is the balance line that stands for the timeframe value of one level that is lower by another level. It is a smoothed moving average graph that consists of 5 periods, typically moved to the future by exactly 3 bars.
The alligator oscillator makes use of the alligator’s jaw, teeth, and lips to represent the movements and interaction between the aforementioned periods of time. In terms of reliability, the alligator indicator can be considered a very reliable reference point. However, a trader should practice due caution because there are markets that do not fluctuate according to the trends as predicted by this kind of oscillator.