Alligator's Mouth Signal

This indicator indicates when to follow the trend and when to desist from entering the market over certain periods. In principle, Alligator Technical Indicator is a combination of Moving Averages that use fractal geometry and nonlinear dynamics.

•           The blue line (Alligator’s Jaw) is a 13-period Smoothed Moving Average, moved into the future by 8 bars.

•           The red line (Alligator’s Teeth) is an 8-period Smoothed Moving Average, moved by 5 bars into the future.

•           The green line (Alligator’s Lips) is a 5-period Smoothed Moving Average, moved by 3 bars into the future.

When the Jaw, the Teeth and the Lips are closed or intertwined, it means the Alligator is asleep and the Moving Average Lines converge which could indicate a trend correction or just a channel period formation.

Once the Alligator wakes up, it opens its mouth and the Moving Average Lines. In this scenario, a clear trend is available when the Alligator lines are in proper order. In an uptrend, Green Line is at the top, Red Line in middle and the Blue Line is the lowest; the price is above the Alligator's mouth. In a downtrend, the Blue Line is at top, Red is in the middle and the Green is the lowest; the price is below the Alligator's mouth. In a channel or sideways market, the lines are mixed up.

In my experience this is a basic indicator and it can be use with several indicators. In fact, there are many strategies based in Alligator signal confirmation. Fractals and Resistences & Sopports Levels are the most popular mix of indicator that can use an Alligator’s principles to build a successful strategy in the market.

For example, as you see in the figure, I follow Alligators downtrend signal confirmation. The Alligator’s mouth is wide open and the price has already broken the support level at 1,42754. As my trendline support has been also overtaken I can anticipate the price is heading towards the pivot at 1,40345 level. That way I set a selling stop just below the trendline and another one in between the pivot and the first resistance.