What Is The Gator Oscillator & How To Trade With It

Bill Williams developed the gator oscillator for his trading strategy based on the principles of the chaos theory. It can give a visually more pleasing interpretation of the alligator indicator, which it is usually used in conjunction with it. The indicator is included in the basic set of technical analysis tools of the MetaTrader trading terminal and, according to Williams, it shows well the “sleep” period, which means the end of the trend, lateral (flat) market movement and the moment when the alligator “wakes up,” that is, the appearance of a new trend on the market. Bill Williams also created the accelerator oscillator and awesome oscillator which help to form his trading strategy template that is readily available in the popular MetaTrader platforms.

What is the Gator Oscillator indicator?

Graphically, the gator oscillator is displayed as two interconnected histograms whose columns are colored green if the previous column is larger than the current and red if less.

Gator Oscillator indicator calculation formula

The indicator calculation is almost completely analogous to the “classic” MACD oscillator with two differences:

  • no signal lines;
  • Added settings for three alligator moving averages.
Gator Oscillator indicator
Gator Oscillator indicator

The gator oscillator calculation formula is as follows:

Histogramm (1) = Abs (SMMA (MedianPrice, 13.8) – SMMA (MedianPrice, 8.5))

Histogramm (2) = (- 1) * Abs (SMMA (MedianPrice, 8.5 ) – SMMA (MedianPrice, 5.3)) SMMA (i) = (Sum (1) – SMMA (i-1)) + MedianPrice (i) / n

Where:

SMMA (i) – the value of the smoothed moving average of the current bar (excluding the first);

Sum (1) – the total amount of MedianPrice for n periods, calculated from the previous bar;

SMMA (i-1) – the smoothed value of the moving average of the previous bar;

MedianPrice (1) – average (median) price of the current bar;

SMMA (MedianPrice, 13.8), SMMA (MedianPrice, 8.5), SMMA (MedianPrice, 5.3) – moving averages of the Alligator indicator;

N is the number of periods for calculating the indicator.

The factor “-1” is necessary to display the second histogram in the negative value region.

How to use the Gator Oscillator indicator?

The maximum of the upper histogram coincides with the period of the largest discrepancy between the alligator moving averages, namely the “jaws” (blue line) and “lips” (red line). Accordingly, the minimum of the lower histogram indicates the maximum discrepancy between the “lips” and the “teeth” (green line) of the alligator and will always be negative and below the zero level. The appearance of highs and lows in the histograms means the presence of a strong trend in the market.

The zero level is an important element of the gator oscillator. If the indicator fluctuates around the zero level, this can signal the end of the current trend and a ranging market. Additional confirmation of the lateral movement will be the interweaving of the Alligator lines.

Gator Oscillator with Alligator indicator
Gator Oscillator with Alligator indicator

Also, by the color and size of the histogram columns, you can easily determine the current “state” of the alligator. Particular attention should be paid to the columns in the areas of highs and lows, which can indicate the presence of a trend. An alligator can be in four states:

  • The alligator “wakes up” – on both sides of the zero level, the histograms are painted in different colors.
  • Alligator “eats” – green columns on both sides.
  • The alligator is “full” – during the “meal” period, red columns appear on one side.
  • The alligator “sleeps” – all columns are red.

Gator Oscillator trading strategy

If using a trend trading strategy, a trader would usually search for market entry points where the gator oscillator columns are increasing in size. An ideal situation would be when only green bars with increasing amplitude appear on the indicator, which indicates the beginning or continuation of a strong buy trend. The opposite would be true (red bars) for a stong sell trend. Some traders will also use the gator oscillator to spot non-trending markets if they want to use a reversal trading strategy.

Gator Oscillator trending market
Gator Oscillator trending market

Let’s take a look at the potential entries in the charts below.

You can sell an asset if you see the complete red column in gator oscillator histogram. Stop loss can be placed slightly above the previous resistance level.

Gator Oscillator sell signal
Gator Oscillator sell signal

You may look to buy an asset if you see a complete green column in the gator oscillator histogram. Stop loss can be placed slightly below the previous support level.

Gator Oscillator buy signal
Gator Oscillator buy signal

Gator Oscillator indicator conclusion

As with the majority of trading tools used for technical analysis that are based on moving averages, the gator oscillator indicator can be lagging behind actual market movements. With that in mind, the gator oscillator can still be used as an additional tool for quickly and easily determining the trend along with the current state of the alligator indicator without actually applying it to the price chart.

The methods of implementing the gator oscillator indicator into a trading strategy that are outlined within this article are just ideas. I would always ensure that I have good money management, trading discipline and a trading plan when using any forex strategy.

Furthermore, I would combine multiple technical analysis, fundamental analysis, price action analysis and sentiment analysis to filter all entries. You should trade forex in a way that suits your own individual style, needs and goals.

If you would like to practice trading with the gator oscillator indicator, you can open an account with a forex broker and download a trading platform. If you are looking for a forex broker, you may wish to view my best forex brokers for some inspiration.

Happy trading!