American trader Bill Williams developed the Gator Oscillator, which is a forex trading tool. It helps give a quick insight into the Alligator Oscillator behavior.
How it works?
The forex indicator uses a histogram format which is divided in half by a naught line to show the convergence and divergence of three Smoothed Moving Averages (SMMAs) to produce trade signals. The formula used to calculate the indicator is:
Median Price = (High + Low)/2
The main concept of the Alligator Oscillator revolves around the counteraction of the three moving averages, which are:
- Jaw (lower moving average) = Smoothed moving average of the median price over 13-period
- Teeth (upper moving average) = Smoothed moving average of median over 8-period
- Lips (middle moving average) = Smoothed moving Average of the median over 5-period
The values are known as balance lines. They are calculated and moved into the future by whatever amount the trader decides. When these moving averages are shown in charts, the jaw will be depicted by the color blue, the teeth by red, and the lips by green.
The Gator Oscillator is most useful in markets that show strong directional price. The Gator showcases the different stages of the Alligator with the help of two symmetrical lines.
What Gator Does?
Keeping in mind the indicating function of the Gator, there are a few terms that traders are familiar with and use it often.
Gator Awake – This is when after sleeping one of the indicator bars is red and the other one is green (either above or below zero)
Gator Eats – This is when both bars (above and below zero) are green.
Gator Fills Out – One can notice this when after eating one of the bars turn red.
Gator Sleeps – This can be observed when both bars are red.