The Alligator Indicator Strategy is a trend-following method developed by legendary trader Bill Williams. This unique tool uses a combination of three smoothed moving averages to represent the “jaw”, “teeth”, and “lips” of an alligator—each designed to show the state of the market: sleeping (consolidation), awakening (breakout), and feeding (trending).

By using the relationship between these moving averages, traders can identify the start of new trends, avoid sideways markets, and time high-probability entries and exits.

What Is the Alligator Indicator?

The Alligator is composed of:

• Jaw (blue line): 13-period SMMA shifted 8 bars into the future
• Teeth (red line): 8-period SMMA shifted 5 bars
• Lips (green line): 5-period SMMA shifted 3 bars

States of the Alligator:

• Sleeping: Lines are intertwined—market is ranging
• Awakening: Lines begin to separate—potential breakout
• Feeding: Lines are spread and aligned—trend confirmed
• Sated: Lines begin converging—trend may be ending

Strategy Objective

• Use the Alligator to determine trend phase and direction
• Enter when the Alligator “awakens” and starts trending
• Exit when the Alligator “sleeps” or begins reversing

Step-by-Step Strategy Guide

Step 1: Wait for the Alligator to Sleep

• All three lines are intertwined or very close together
• Indicates low volatility and consolidation
• No trade—prepare to monitor for breakout

Step 2: Confirm the Awakening Phase

• Lines start to spread in one direction:
  • Lips above teeth above jaw = bullish trend beginning
  • Lips below teeth below jaw = bearish trend beginning
• Volume increases or breakout candle confirms move

Step 3: Entry on First Breakout Candle

• Enter long if price breaks above the aligned Alligator with bullish candle
• Enter short if price breaks below the aligned Alligator with bearish candle
• Optional: Use RSI or MACD for confirmation

Step 4: Stop Loss and Take Profit

• Stop Loss:
  • Below the jaw (for long) or above the jaw (for short)
  • Or use ATR (1.5x) for flexibility
• Take Profit:
  • Ride the trend while lines stay spread
  • Exit when lips (green) cross back into the other lines (sign of trend exhaustion)
  • Or use trailing stop under the lips (dynamic support/resistance)

Example: GBP/USD H1 Alligator Buy Setup

• Alligator lines converge at 1.2620—sleeping phase
• Price breaks out at 1.2645 with bullish engulfing candle
• Lines open: lips > teeth > jaw
• Entry: 1.2650
• SL: 1.2610
• TP: 1.2725
• Exit as green line crosses back below red = trend softens

Alternative Setup: Alligator + Fractals

• Combine with Bill Williams Fractal indicator
• Enter on breakout of most recent fractal above/below the Alligator lines
• Adds structure-based confirmation for precise entries

Best Market Conditions

• Breakouts from consolidation or ranges
• High volume sessions: London, New York
• Trending pairs like EUR/USD, XAU/USD, NAS100, BTC/USD
• Avoid flat Alligator lines or major news events

Advantages of the Alligator Strategy

• Visually intuitive and easy to follow
• Identifies clean entry zones during new trends
• Helps avoid chop and false signals in sideways markets
• Combines well with other Bill Williams tools (Fractals, Awesome Oscillator)
• Works on all timeframes

Common Mistakes to Avoid

• Trading when lines are still tangled—no clear trend
• Entering before confirmation candle forms
• Ignoring reversals when lips cross back into the Alligator
• Using it alone without structure or risk management

Conclusion

The Alligator Indicator Strategy offers a simple yet powerful way to align with market trends and avoid dangerous ranges. By learning to read the sleeping and feeding phases of the Alligator, traders can time entries with greater precision and stay in trades longer during trending phases.

To fully master this strategy and integrate it with professional risk and trade management techniques, enrol in our Trading Courses and evolve your approach with proven, institutional-grade tools.