The alligator oscillator is one of the simplest indicators that you can study and use in the actual trading. It consists of three lines that represent three moving averages. These averages are indicative of several parameters that are found to be useful in coming up with strategies in the actual trading. The three lines are the following:
- The blue line is the chap of the alligator, which is the balance line for a period being considered (13-period and move to the future by 8 bars).
- The green line is the lips of the alligator that is one step less than the teeth (5-period and move to the future by 5 bars).
- The red line is the teeth of the alligator, moving the analysis further one step away from the chap (8-period and move to the future by 5 bars).
What does the alligator oscillator aim in the long run? To answer the question, experts laid out the following reasons:
- So that there is no longer a need to worry about the past trends. The alligator indicator is said to be very effective as a usage indicator for current trades.
- The alligator indicator is also found to be a dependable method of saving cash as the market moves despite the boundary set by the price channel.
- It also aims to effectively illustrate and symbolize the movements in the market. This is found to be useful if you intend to monitor progress in the market within a period of time.
It is established that the alligator oscillator proves to be truly helpful for traders in order to concretize trends so that it will be possible to look at them closely and analyze the data. It is said that the alligator indicator works best if you will couple it with an indicator that focuses on the momentum aspect.
Why was it compared to the animal alligator? According to its creator, the indicator is very much the same in relation to the animal’s sleeping and eating habits or patterns. Experts say that all sorts of trends only occur 20 to 30 percent of the entire time, the alligator oscillator becomes truly helpful in keeping a trader updated until a suitable trend presents itself. When the trend is present, the alligator helps a trader in making the right kinds of decision.
The alligator oscillator has three settings for the period namely: 5, 8, and 13. It also has three settings for shift and these are: 3, 5, and 8. There are key points to look after when using this oscillator:
- The point of reference is when the three lines are joined or overlapping. This represents the period when the alligator is asleep. This reminds the trader to be patient.
- When the green and red lines cross each other, they are considered to be open. This only means that the lines are apart or the alligator is eating. This suggests that you should stay in the trade while the candlesticks are still riding over the alligator.
- Once the lines cross once again or converge to a single point, it means that the trading is over and time to wrap up.
A word of caution: the alligator oscillator, just like all other indicators cannot be 100 percent correct. So at the end of the day, you should also rely on your better judgment when making critical decisions.