Optimize Your Trades with the Williams Alligator Method

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The Williams Alligator is a trend indicator built from three smoothed moving averages that are shifted forward on the chart. The way those lines are spaced and ordered tells you whether a market is trending or drifting sideways. To use it well, you trade only when the lines have separated in the right order. You time entries with a trigger such as a fractal breakout, and you stay out when the lines are tangled. Bill Williams introduced the indicator in New Trading Dimensions (1998). He described it as a way to “keep our powder dry” until a real trend appears, so a large part of its value is the trades it keeps you out of.

How the Alligator Indicator Is Built

Each line is a smoothed moving average of the median price, which is (high + low) / 2 for each bar. Each line is then displaced forward so that it is plotted ahead of the current bar.

The periods are consecutive Fibonacci numbers. The forward shift is what separates the Alligator from three ordinary moving averages. Plotting the jaw 8 bars ahead means the current candle is compared against a value calculated 8 bars earlier. That widens the gap between price and the slow line during a trend and makes the lines react later when the trend turns. Some platforms let you choose closing price instead of median price, or change the shift, but the defaults above are the ones Williams published.

Calculating the smoothed moving average

Charting platforms calculate the Alligator for you, but the formula explains why the lines turn slowly.

1. First value: SMMA1 = sum of the first N prices / N. This is a simple moving average.
2. Every later value: SMMA(i) = (SMMA(i−1) × (N − 1) + Price(i)) / N.

Here N is the smoothing period and Price(i) is the current bar’s median price.

Hypothetical example (lips, N = 5): the previous SMMA is 1.1000 and the new median price is 1.1050. SMMA = (1.1000 × 4 + 1.1050) / 5 = 5.5050 / 5 = 1.1010.

A 50-pip jump in price moves the line only 10 pips. Each new bar carries a weight of 1/N and older values never fully drop out, so an SMMA turns more slowly than a simple or exponential average of the same length. For the jaw, with N = 13, the effect is stronger still.

Reading the Four Phases

Williams described the indicator through the habits of an alligator. Each phase corresponds to a line arrangement:

• Sleeping: the three lines are close together, flat and crossing repeatedly. The market has no direction, and Williams’ instruction was to stay on the sidelines.
• Awakening: the lips cross the teeth and the jaw and begin to separate from them. An upward cross points to a possible uptrend and a downward cross to a possible downtrend. This is a first sign that a trade may be forming, not confirmation.
• Eating: the lines fan out in order and slope the same way: lips on top, teeth in the middle and jaw at the bottom for an uptrend, the reverse for a downtrend. Williams called this the mouth “wide open.” The wider and more evenly sloped the fan, the stronger the trend. Existing positions are held and managed here.
• Sated: the lines converge, flatten and start to cross. The trend is losing force, which is the time to take profits or tighten stops before the cycle returns to sleep.

Finding a Williams Alligator Entry Point

The phase tells you whether to trade. The entry point tells you where. Williams did not treat a line cross as an order to buy at market. He paired the Alligator with fractals, which are five-bar patterns. An up fractal is a bar whose high sits above the highs of the two bars on each side. A down fractal is the mirror image with lows.

A common rule set from his method works like this:

1. Confirm direction. For longs, price should be above the lines and the lips should be above the teeth and jaw, or crossing up through them. For shorts, reverse everything.
2. Filter the trigger. A buy fractal counts only if its high is above the teeth (red line), and a sell fractal counts only if its low is below the teeth. A fractal inside the mouth is ignored.
3. Place a stop entry. Put a buy stop one tick or pip above the valid up fractal, or a sell stop below the valid down fractal. The trade fills only if price breaks the fractal level.
4. Set protective risk. A stop beyond the jaw, or beyond the most recent opposite fractal, places the exit at the point where the trend reading would be invalid.

Hypothetical example, EUR/USD hourly chart: the lips have crossed above the teeth and jaw, and all three lines are rising. An up fractal forms with a high of 1.0870 while the teeth sit at 1.0840, so the fractal qualifies. You place a buy stop at 1.0871. The jaw is at 1.0815, and you put the protective stop just below it at 1.0814, a risk of 57 pips. That pip distance, together with the amount you are willing to lose, determines your lot size in the position size calculator.

If price never trades through 1.0871, no order fills. This filters out many weak awakening signals in a range, which stall before breaking the fractal.

Managing and Exiting the Trade

Once you are in a trade, the lines act as a trailing structure:

• Trail with the lines. Aggressive traders trail the stop under the lips, more patient traders use the teeth, and long-term holders use the jaw. A stop at the lips exits early in a pullback, while a stop at the jaw gives back more profit but survives deeper retracements.
• Watch for the sated phase. When the lips flatten and cross back into the teeth, the trend reading has weakened. Many traders take partial profits there instead of waiting for the full cross through the jaw.
• Pullbacks to the jaw are not exits by themselves. In a strong trend, price can dip to the jaw without the three lines crossing. The trend reading holds as long as the line order does.

Adding to a winning position is also part of Williams’ approach. A new valid fractal in the trend direction, beyond the teeth, can serve as a second entry with its own stop.

Using the Alligator in Forex Trading

The indicator works on any market and timeframe, because it uses only price. In forex, a few practical points apply:

• Choose the timeframe to fit your style. Position traders may use weekly charts, swing traders often use the 30-minute to 4-hour range, and day traders may drop to 1-minute to 15-minute charts, where signals and whipsaws both come more often. On very short charts used for scalping, the 8-bar forward shift covers only minutes, so the lines react quickly but carry little smoothing.
• Account for session liquidity. Currency pairs often move differently across the Asian, London and New York sessions, and an Alligator that sleeps through a quiet session can wake when a more active one opens. Comparing signals by session shows whether awakenings at particular hours tend to follow through on the pairs you trade.
• Use daily-chart context. A long signal on a 1-hour chart while the daily Alligator is sated or pointing down trades against the larger structure. Checking one higher timeframe before acting is a simple filter.

Indicators That Pair Well With the Alligator

Because the Alligator is a lagging trend tool, it is usually combined with indicators that measure something it does not.

Bill Williams’ own companion tools:

• Fractals: the entry and stop trigger described above.
• Awesome Oscillator (AO): the difference between a 5-period and a 34-period simple moving average of median price, shown as a histogram. It measures momentum behind the move.
• Accelerator Oscillator (AC): the AO minus a 5-period average of the AO. It tracks whether momentum is speeding up or slowing down, and Williams viewed it as an earlier warning than the AO.
• Gator Oscillator: a histogram of the distances between the jaw and teeth and between the teeth and lips. It shows the opening and closing of the mouth as bars instead of lines.

General indicators traders combine with it:

• RSI or the stochastic oscillator, to see whether a breakout is entering overbought or oversold territory.
• MACD, as a second trend-and-momentum check on awakening signals.
• Average Directional Index (ADX), which measures trend strength regardless of direction. A rising ADX alongside an opening mouth supports the reading, and a low, flat ADX supports a “sleeping” reading.
• Pivot points and support and resistance levels, which show where a fresh trend may run into existing supply or demand.

Strengths and Limitations

Strengths

• Clear trend or range reading: line order and spacing are easy to read at a glance.
• Simple rules: each phase maps to an action: wait, prepare, hold or take profits.
• Works across markets and timeframes: currencies, stocks, commodities and crypto, from intraday to weekly charts.
• Built-in structure for stops: the three lines provide graduated trailing levels.

Limitations

• Lag: smoothing plus a forward shift means signals arrive after the move has started, and exits come after the turn.
• False signals in ranges: when lines crisscross, awakening signals inside wide ranges often fail and produce whipsaws.
• Sensitivity to settings: changing periods or shifts changes the signals significantly. A setup tuned to one pair or period may not carry over to another.
• No profit target: the indicator says when a trend appears to exist, not where it will end.

Common Mistakes

• Trading every cross. A lips-teeth cross during a sleeping phase is noise. Wait for the lines to separate in order, or for a fractal break beyond the teeth.
• Misreading the phase. Converging lines after a long trend are a sated signal, not a fresh entry in the opposite direction.
• Over-optimizing the inputs. Adjusting periods until past signals look perfect fits the indicator to history and usually weakens it on new data.
• Skipping risk control. Lag means some losses will be larger than the chart suggested at entry. Size positions from the stop distance, and practice the rules on a paper trading simulator before using real capital.

FAQs

The Bottom Line

Forex traders who want a rule-based way to separate trends from sideways markets can use the Alligator as a filter that keeps them out of weak setups. Its lag and false signals in ranges mean it works best with fractal triggers, a higher-timeframe check and position sizes based on stop distance. Testing the default settings on a paper trading simulator before risking real capital is the safer path.