Chaos Alligator: Difference between revisions

Latest revision as of 16:56, 21 May 2024

Overview

Chaos Alligator indicator (or Williams Alligator) is a trend-following technical analysis tool introduced by a well-known trader and author Bill Williams. It is based on the idea that financial markets and individual securities usually trend at a lower rate than sideways ranges. The indicator was developed with the thought in mind that both institutions and individuals generally collect more profit when a market is trending strongly.

Components

To analyze market trends and potential turning points, the Williams Alligator indicator uses smoothed moving averages set at periods based on Fibonacci numbers: 13, 8, and 5. They are Jaw, Teeth, and Lips/Mouth correspondingly.

Jaw is a blue line that begins with the 13-bar SMMA and shifted forward by 8 bars.
Teeth are a red line that begins with the 8-bar SMMA and shifted forward by 5 bars.
Lips/Mouth are a green line that begins with the 5-bar SMMA and shifted forward by 3 bars.

The Jaw of the Alligator inherently makes the slower turns, whereas the Lips/Mouth of the indicator make the faster turns.
These components open and close depending on their subsequent reaction to evolving trends and trading ranges alike.

How to interpret results

Plots of the Chaos Alligator can help identify the direction and strength of a trend and determine entry and exit points in the market:

When the three lines are intertwined, the market is in a resting or consolidating phase, often referred to as the "Alligator is sleeping".
When the lips cross over the teeth and jaw, "the Alligator is waking up" and a new trend might be starting.
When the lines are fanning out and moving in the same direction, it suggests a strong trend, indicating that "the Alligator is eating".

Traders might look for the lips crossing above the other lines to enter a long position or below the other lines to enter a short position.
When the lines start converging again, indicating potential trend exhaustion, traders might exit positions.

Default Inputs

Jaw = 7 by default.

JawOffset = 8 by default.

Teeth = 8 by default.

TeethOffset = 5 by default.

Lip = 5 by default.

LipOffset = 3 by default.

Value sets the formula (high+low)/2.

@@ Line 1: / Line 1: @@
-=== Definition===
+=== Overview===
 ''Chaos Alligator'' indicator (or ''Williams Alligator'') is a trend-following technical analysis tool introduced by a well-known trader and author Bill Williams. It is based on the idea that financial markets and individual securities usually trend at a lower rate than sideways ranges. The indicator was developed with the thought in mind that both institutions and individuals generally collect more profit when a market is trending strongly.<br>
-To analyze market trends and potential turning points, the Williams Alligator indicator uses the Simple Moving Average (SMA) indicator to add more smoothed averages to the result that generally slow down indicator turns.
+=== Components ===
-The indicator uses three smoothed Moving Averages (MAs) set at periods that are Fibonacci numbers: five, eight, and 13. <br>
+To analyze market trends and potential turning points, the Williams Alligator indicator uses smoothed moving averages set at periods based on Fibonacci numbers: 13, 8, and 5. They are Jaw, Teeth, and Lips/Mouth correspondingly.
-The three Moving Averages that are used comprise the Alligator in three major ways: the Jaw, the Teeth, and the Lips/Mouth. These components open and close depending on their subsequent reaction to evolving trends and trading ranges alike. Let’s dig a little deeper into each function of the Williams Alligator indicator.
-* The Jaw. The Alligator’s jaw is projected as a blue line and begins with the 13-bar SMMA. The line is smoothed by eight bars on its following values.
+* <font color="blue">'''Jaw'''</font> is a blue line that begins with the 13-bar SMMA and shifted forward by 8 bars.
+* <font color="red">'''Teeth'''</font> are a red line that begins with the 8-bar SMMA and shifted forward by 5 bars.
+* <font color="green">'''Lips/Mouth'''</font> are a green line that begins with the 5-bar SMMA and shifted forward by 3 bars.
-* The Teeth. The Alligator’s teeth are projected as a red line and begin with the eight-bar SMMA. The line is smoothed by five bars on its following values.
+The Jaw of the Alligator inherently makes the slower turns, whereas the Lips/Mouth of the indicator make the faster turns.<br>
+These components open and close depending on their subsequent reaction to evolving trends and trading ranges alike.
-* The Lips/Mouth. The Alligator’s lips/mouth are projected as a green line and begin with the five-bar SMMA. The line is smoothed by three bars on its following values.
+=== How to interpret results ===
-The Jaw of the Alligator inherently makes the slower turns, whereas the Lips/Mouth of the indicator make the faster turns.
+Plots of the Chaos Alligator can help identify the direction and strength of a trend and determine entry and exit points in the market:
-<br>
+*When the three lines are intertwined, the market is in a resting or consolidating phase, often referred to as the "Alligator is sleeping".
+*When the <font color="green">lips</font> cross over the <font color="red">teeth</font> and <font color="blue">jaw</font>, "the Alligator is waking up" and a new trend might be starting.
+*When the lines are fanning out and moving in the same direction, it suggests a strong trend, indicating that "the Alligator is eating".
+Traders might look for the <font color="green">lips</font> crossing above the other lines to '''enter''' a long position or below the other lines to '''enter''' a short position.<br>
+When the lines start converging again, indicating potential trend exhaustion, traders might '''exit''' positions.
 === Default Inputs ===