A moving average-based trading system is successfully used by traders in trending markets (such as currencies, for example), and one of its main instruments is the alligator indicator. Bill Williams Alligator indicator is a way of filtering signals for bigger profits and he likened it to a compass for navigating the markets and helping you get in on the best moves.
Alligator indicator consists of 3 Moving averages:
Alligators jaws (blue line) 13-period Simple Moving Average built from (High+Low)/2, moved into the future by 8 bars;
Alligators teeth (red line) - 8-period Simple Moving Average built from (High+Low)/2, moved by 5 bars into the future;
Alligators lips (green line) - 5-period Simple Moving Average built from (High+Low)/2, moved by 3 bars into the future.
The alligator was first described by Bill Williams in his book New Trading Dimensions. Following are the Bill William's Alligator indicators I put together. Please read his book "Trading Chaos" and pick up a demo of his "Investor's Dream" software from his web site to see how they are used. In principle, Williams Alligator Technical Indicator is a combination of Balance Lines (Moving Averages) that use fractal geometry and nonlinear dynamics.
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