Alligator Indicator: Bill Williams Trend Tool Guide
The Alligator is a trend tool built by Bill Williams from three smoothed moving averages of the median price, each shifted forward in time, so their spacing shows whether a market is trending or resting. The three lines are called the jaw, the teeth and the lips, and their states are described as the alligator sleeping, waking, eating or getting full.
Williams argued that markets trend only a fraction of the time and that most losses come from trading during the rest. The Alligator is a visual filter for exactly that.
How the Three Lines Are Built
All three use the median price, which is (High + Low) / 2, and a smoothed moving average rather than a simple one. A smoothed moving average of period n updates like this:
SMMA today = (SMMA yesterday x (n minus 1) + Median Price today) / n
| Line | Role | Period | Forward shift | Colour |
|---|---|---|---|---|
| Jaw | Balance line, slowest | 13 | 8 bars | Blue |
| Teeth | Middle line | 8 | 5 bars | Red |
| Lips | Fastest line | 5 | 3 bars | Green |
The forward shift matters. Each line is plotted ahead of the bar it was calculated from, so the jaw beside today’s candle was computed 8 bars ago. That spacing keeps the fast line off the slow line and makes the fanning easy to see. It also pushes the lines past the last price bar, which some traders mistake for a forecast. It is not one.
Worked Example (Illustrative)
The jaw sits at Rs 1,438, the teeth at Rs 1,444 and the lips at Rs 1,452, with price at Rs 1,461. The jaw to lips gap of Rs 14 is about 1 percent of price, the lines are in order and separating, and price is above all three. That is the eating state.
A week later the jaw is Rs 1,455, the teeth Rs 1,456 and the lips Rs 1,454, all inside a Rs 2 band while price chops between Rs 1,448 and Rs 1,462. Braided and out of order: the sleeping state.
Reading the Alligator States
- Sleeping: lines intertwined and nearly flat, no clear order. No trend, and Williams’ rule was to stand aside.
- Waking: lines separating and lining up in order, usually as price leaves its recent range.
- Eating: lines clearly fanned in sequence with price on the outside. The trending phase.
- Full: the lips turn back through the teeth and the gap narrows. Momentum is draining.
In an uptrend the order from top to bottom is lips, teeth, jaw. In a downtrend it inverts. When the order is scrambled there is no trend to read, however tempting the candles look.
The tool has no scale and no divergence reading, so it cannot tell you a trend is overextended. Williams paired it with momentum tools such as the Awesome Oscillator, because the Alligator alone is blind to exhaustion.
When It Works and When It Fails
It works on liquid trending instruments with decent daily ranges, such as Nifty 50, Bank Nifty and index heavyweight stocks on daily or 4-hour charts. In a sustained move the fanned lines keep a trader in position long after a short moving average crossover would have shaken them out.
It is useless in a choppy range, and that deserves saying bluntly because it is where the damage happens. Sideways, the three averages converge and cross repeatedly, producing order changes that look like fresh trends. A trader treating every lips-crossing-teeth event as a setup through two weeks of range-bound Nifty pays brokerage, STT and the spread on trades that go nowhere. A sleeping alligator means no trade.
The specific risk beyond whipsaw is late entry and late exit. All three lines are smoothed and shifted forward, so a new trend is confirmed well after the turn. Enter when the mouth is fully open and the distance to the nearest structural stop can be large, forcing a smaller position to keep rupee risk constant. The exit signal lags too, so a slice of open profit is normally given back.
Frequently Asked Questions
Why are the lines drawn ahead of the last candle?
Each line carries a forward shift of 8, 5 or 3 bars, so its plotted value sits to the right of the bar it came from. It is a display offset that makes spacing readable. Nothing about the shifted segment predicts future price.
Can I use the Alligator on 5-minute charts?
You can, but the sleeping state dominates most intraday sessions, especially through the thin midday hours on the NSE, and the lines braid constantly. Traders who use it intraday take the trend read from an hourly chart and the lower one only for timing.
How is a smoothed average different from an exponential one?
A smoothed moving average is an exponential average with a smoothing factor of 1/n instead of 2/(n+1), which makes it slower for the same period. A 13-period SMMA behaves more like a 25-period EMA, so swapping in an EMA changes the crossings.
Does the Alligator repaint?
No. Once a bar closes its median price is fixed and the smoothed averages for that bar do not change. The segments beyond the last candle are shifted copies of values already computed.
Key Takeaways
- Three smoothed averages of the median price: jaw 13 shifted 8, teeth 8 shifted 5, lips 5 shifted 3.
- Fanned lines in order mean a trend, braided flat lines mean no trend.
- The forward shift is a display offset for readability, not a price projection.
- In a choppy range it gives repeated false crossings and is best ignored entirely.
- Signals lag on entry and exit, so expect late fills and some given-back profit.
