This is another indicator used in the middle/long-term expiration timeframe investments. It is composed of three simple moving averages and on the chart it looks like a crocodile, and so traders saying that “the crocodile asleep” when the three moving averages overlap or are too close. The awakening of the crocodile instead is given by the opening of its jaws. The three moving averages are set as follows:
Blu Moving Average (jaws) 5 periods
Red Moving Average (teeths) 8 periods
Green Moving Average (lips) 13 periods
The moving averages may also identify the support and resistance lines, in fact in some cases the Alligator may take the form of Bollinger bands. Also the crocodile is used to trace the trend and its strength, but once again if used “alone”, can be useless or even create damages. In the picture, we have a “Sleeping Beauty” phase followed by a small “revival” of the crocodile and a new falling asleep phase. To be sure that the Alligator data signals are good, it will be necessary that the averages do not cross, therefore:
- In the case of the three averages cross each other will mean that the crocodile is sleeping or is falling asleep.
- If the three moving averages get back a proper distance between them, the crocodile will be awake or in the awakening phase.
The trend is easily identified as follows:
- The sequence Jaws – Teeth- Lips indicates a downward trend.
- The sequence Lips – Teeth- Jaws indicates an upward trend.
The rule says that:
- If the alligator indicates a downward trend and the price moves below the green line (Teeth) the signal will be Long (Buy, Call).
- If the alligator indicates an upward trend and the price moves above the green line (Teeth) the signal will be Short (Sell, Put).
The Alligator is widely used in long-term expiration investments and is often associated with Fractal.