Blockchain and Cryptocurrency Advanced - The Alligator indicator

The Alligator indicator is basically a technical indicator that is used for the confirmation of the current price trends in the market and also their primary direction in the market. It is known as a trend-following technical indicator that helps traders trade with the trend. The indicator does this by plotting on the chart three moving average line known as the Jaw (blue line), Teeth (red line), and Lips (green line). By default, the three moving averages have a period length of 5, 8, 13 period length. The Jaw is set at a period length of 13 with an offset of 8, the Teeth is set at a period length of 8 with an offset of 5 and the Lips is set at a period length of 5 with an offset of 3. Bill Williams is the creator and developer of the Alligator indicator. On the Alligator indicator, Jaw, Teeth, and Lips indicate the interaction of the different periods.

When it comes to the alligator indicator, there are terms that are associated with the alligator by Bill Williams. The terms are Alligator sleeping, Alligator waking up, Alligator eating. Alligator sleeping basically means that there is indecision in the market or the market is moving sideways, as the Jaw, the Teeth, and the Lips of the Alligator indicator are closed or joins together. Alligator waking up basically means that there is a trend after the indecision in the market. Alligator eating basically means that there is a trend forming in the market, either bull or bear. Alligator sleeps again basically means that the ongoing trend is ends and the alligator moving average lines closes or joins together.

Alligator Indicator on the AAVE/USDT Chart

Alligator Indicator Calculation

When it comes to the calculation of the alligator indicator, there are different parts that needs to be calculated such as the Median price, Alligator Jaw, Alligator Teeth and Alligator Lips.

MP = (High + Low) / 2
J = MMA (MP, 13, 8)
T = MMA (MP, 8, 5)
L = MMA (MP, 5, 3)

Where;
Median Price = MP
Alligator Jaw = J
Alligator Teeth = T
Alligator Lips = L

The first part is the calculation of the MP (Median Price) of each of each candlestick. To get this, the high and low is added and the result is divided by 2 to get the median price.

The next part is the calculation of the Alligator Jaw. To get this, the MP of 13 periods with an offset of 8 is calculated.

The next part is the calculation of the Alligator Teeth. To get this, the MP of 8 periods with an offset of 5 is calculated.

The next part is the calculation of the Alligator Lips. To get this, the MP of 5 periods with an offset of 3 is calculated.