Gator Oscillator (gator comes from the word alligator as this animal is used as an analogy to describe the indicator) is a technical indicator which helps visualize the periods in which the Alligator indicator expands or shrinks. It was developed by Bill Williams in his Theory of Chaos and is currently a widely used indicator for traders and investor in all kinds of markets including Forex.
It is used to study the bullish or bearish trends of a financial asset. So, depending on the value of the histogram that represents it, it indicates the phase of the market trend in which the financial asset is located.
How to use the Gator oscillator?
As we can observe in the previous price chart, the indicator is a histogram composed of green and red bars and a dashed center line. That center line is also called zero line. In such a way that the bars (red or green) are built around this value. A green bar is formed when its value is greater than the value of the previous bar. Instead, a red bar appears when its value is less than the value of the previous bar.
The Gator Oscillator histogram above zero shows the absolute difference between the blue line and the red line of the Alligator indicator while the histogram below zero shows the absolute difference between the red line and the green line of the same indicator.
This oscillator can display the possible future changes in market trends, which in the case of the Alligator indicator manifest when the “alligator sleeps, eats and is about to go to sleep.”
How the Gator Oscillator works?
With respect to this indicator, we can define four basic states:
- The alligator wakes: This condition occurs when a red bar is formed and then is followed by a green bar (can be above or below the zero line) after the alligator was sleeping.
- The alligator starts to eat: In this case both bars (above or below the zero line) are green.
- The alligator is filled: Having been eating the alligator, a red bar appears.
- The alligator is sleeping: It is said that the alligator goes to sleep when two red bars appears in the oscillator.
By default, in trading platforms like Metatrader 4, Gator Oscillator is configured with a slight shift forward at the time of display the indicators bars. When we trade with this indicator in real time, there is no major difference/impact, but if you want to make a visual backtesting, this change makes impossible to make a realistic assessment of performance of the Gator indicator.
Therefore, we recommend setting the offset to zero, as shown in the following image: