Chaos Alligator

Definition

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. Jaw, Teeth, and Lips/Mouth correspondingly.

• 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.

• 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 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.

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

When the three lines are intertwined, it suggests that the market is in a resting or consolidating phase, often referred to as the "Alligator is sleeping." When the lips (green line) crosses over the teeth (red line) and jaw (blue line), it indicates that 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.

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.