Alligator Indicator MT4 | MT5

The Alligator is classified as a trend-following indicator, developed by Bill Williams, designed to aid traders in determining trend direction, strength, and potential reversals. It presents on the MetaTrader chart three smoothed moving averages (S.MA) with different periods and shifts:

• Jaw (Blue Line): 13-period S.MA, shifted forward by 8 bars.
• Teeth (Red Line): 8-period S.MA, shifted forward by 5 bars.
• Lips (Green Line): 5-period S.MA, shifted forward by 3 bars.

These lines behave like an alligator, providing traders with valuable insight into market movements:

1. Sleeping (Lines Converging): The market is in a consolidation phase.
2. Waking up (Lines Separating): The market is making a trend decision.
3. Feeding (Lines Expanding): Trend confirmation.
4. Stated (Lines Converging): The trend is weakening, signaling a potential breakout or trend reversal.

Furthermore, in the first two market scenarios, traders are advised to stay out of the market and avoid entering any trade. For the third one, there are two possible outcomes:

- If the Lips (green) crosses above the Teeth (red) and Jaw (blue), followed by the Teeth crossing above the Jaw, it signals a buying opportunity.

- If the Green line crosses below the Red and Blue ones, followed by the Red crossing below the Blue, it signals a selling opportunity.

In the final scenario, traders should exit their positions and wait for a confirmation from the lines, as explained earlier, to determine whether the trend will continue or reverse.

In the first trading example on the MetaTrader 4 chart, as the lines come closer together, the market is in a consolidation phase. When the lines start to separate, suggesting a bullish momentum. When the green line crosses above the two lines, with Teeth in the middle, signaling a buying opportunity for the trader. Toward the trend's end, the lines re-converge, suggesting a sideways trend and presenting an exit point for the long position. As the price drops and the green line crosses below, confirming the reversal of the trend and providing a selling opportunity in the market. 

In the second trading example on the MetaTrader 5 chart, the indicator's lines come closer, suggesting a sideways trend. When the lines begin to separate, proposing a bearish movement. When the Lips crosses below the Teeth they cross also below the Jaw, signaling a short opportunity. Near the trend's end, the lines re-converge, entering the stated phase, which indicates a potential trend reversal or continuation. When the price rises alongside the green and blue lines change positions, signaling a buying opportunity for the trader.

For more accurate trade decisions, it is recommended to use, alongside this indicator, the MACD or RSI for confirmation of momentum, and Fractals to pinpoint breakout opportunities.