Bill Williams, one of the most well-known traders in history and creator of many excellent technical analysis tools, has not only developed indicators that are now used by investors around the world, but also sought to further refine them and optimize for various markets and strategies. This is the way a whole range of forex indicators has been created, which can be used in even the most complex trading systems. As in the case of the Awesome Oscillator, for which an additional indicator was created – the Accelerator Oscillator, Bill Williams created the Gator Oscillator for the Alligator indicator. Similarly in the Case of most of auxiliary indicators in the technical analysis, Gator Oscillator has the task of showing the difference in value between the indications of the reference tool. We’ll discuss this, however, a bit later.
It is significant that although Gator is not as popular as Bill Williams’ other works, most notably Alligator, Fractal, and Awesome Oscillator – it definitely deserves attention. However, we can say so in fact about all of the technical analysis tools that came out of Williams’ workshop. Gator, as Bill Williams’ entire work, is based primarily on the cyclicality of the market, Elliott’s theory of waves (the foundations of all technical analysis of financial markets) and chaos theory. The advantage of similar foundations of Williams’ systems is that his indicators are definitely complementary, so it’s really worth to apply the investment strategies built on the basis of several of his works. Many of them can be found on the net, which definitely makes it easy for at least novice investors who do not have much experience in building systems yet. But remember that before you start trading in the real market, we must test each investment strategy – under different conditions, on different instruments and of course at different intervals.
Construction and Operation of Gator Oscillator indicator
As already mentioned earlier, Gator Oscillator is an auxiliary indicator for another Bill Williams’ product – the Alligator Oscillator. For this reason, first a few words about it. This oscillator consists of three lines running roughly along the price chart of the instrument being analyzed. By default, these lines appear in blue, red and green. Changing these colors is not advisable because after downloading various investment strategies from the Internet, with the default colors set, we may confuse these lines and it will not be easy to read transactional signals.
The most important task of the Alligator indicator is to show the right moment to take a position on the market – unfortunately, it should not be used for making decisions on whether it is to be a long or short position. The three lines symbolize Alligator’s lips, teeth, and jaws – these are three moved, smoothed, moving averages that show how three different time periods coincide. The blue line is the alligator’s jaw. This is the balance line for the entire period that was used to build the chart. Mathematically speaking, it is a 13-period moving average from half of the maximum and minimum amount of these 13 periods, moved by 8 bars into the future. The red line is the alligator’s teeth. This is a line calculated for a much shorter period of time – it is an 8-period moving average from half of the maximum and the minimum amount, moved by 5 bars into the future. The last line, green, is the alligator’s lips. Alligator’s lips are 5-period moving average from half of the maximum and minimum amount, moved by 3 bars into the future
The Alligator’s philosophy can be best explained through the words of its creator – Bill Williams – market trends occur only for 15 to 30% of the entire time of quotations. Therefore, it is very essential to keep up with and follow the emerging trends. In addition, it is important not to invest or speculate at a time when the price of a given instrument changes significantly only in one specific period.
Thus, the indications of the Gator Oscillator are based on the indications generated by the Alligator indicator. They show the degree of divergence (or lack thereof) of moving averages. The oscillator values, as in the case of the Awesome and Accelerator oscillators, are represented on a histogram with green and red bars. The upper part of the histogram shows the difference between blue and red values. The bottom histogram is the difference between the values of the red and green lines.
Use of Gator Oscillator indicator
Let’s be honest – there are indicators whose indications are more easily readable than those generated by the Alligator, which, though very clear, require a lot of attention. Moves of moving averages are often very light and therefore it is easy to miss the change and thus lose the chance of taking the right position at the best moment. Fortunately, Bill Williams thought about it and came with the aid by offering Gator Oscillator. It aims to show the investor the difference between the moving average values, to put it simply, to track those changes that the investor might overlook and show them in more pictorial way.
Thus, like the Alligator Oscillator, the Gator Oscillator indicator shows the next components of the market activity cycle. They are depicted with two symmetrical lines – one over and the other below the zero line. The indications are read as follows: when the alligator is sleeping the two lines are red, when the alligator wakes up one of the histogram lines (no matter if it’s upper or lower one) is red and the second green. When the alligator eats, both histogram lines are green. In turn, when the alligator is in a state of satisfaction, i.e. the last phase of the cycle, one of the lines will turn red again.
The manner of the use of color changes of the oscillator directly results from the performance of the Alligator indicator. While jaws, teeth and lips are completely clamped, that is, when both lines are red, the alligator sleeps. It is better not to trade at this time. When it wakes up, i.e. one line will turn green on the chart, you will be able to see some level of market indecision. When hunting continues, both lines are green and then there is the best time to look for positions.
Less popular behavior among investors is to take positions themselves solely on the basis of this indicator, but such strategies also exist. Exemplary transaction signals are those generated based on expansion and narrowing of the histogram. When the indicator expands, i.e. the upper line rises and the bottom line decreases, then the buy signal appears, analogously the sell signal is generated. It is worthwhile, however, to look for more accurate trading signals, try using other technical analysis indicators from Bill Williams’ collection.
Advantages of Gator Oscillator
- Provides aid in reading Alligator’s signals
- Possibility to specify the trend strength
- Possibility to specify the trend direction
- Possibility to use with other, any indicators
Drawbacks of Gator Oscillator
- Large numer of signals – necessity to filter them