Chaos Alligator

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.