In this article, we will be taking a look at the Williams Alligator Indicator (WAI).
The WAI was created by famous trader Bill Williams and utilises smooth averages. Below we can see an example of the WAI with the BTC/USDT pair on AAX spot.
When looking at the indicator there are three parts to it. These are the jaw, teeth and lips. Below is more information on each section:
Jaw = 13-bar SMMA with 8 bar smoothing
Teeth = 8-bar SMNA with 5 bar smoothing
Lips = 5-bar SMNA with 3 bar smoothing
Before we get started it is imperative that when using this indicator patience is applied. If a trader takes every signal and does not let the picture formulate then they will see more negative trades than positive ones. The WAI does not simply show positive and negative crossovers – it displays trends, market tiredness and periods of bull/bear fights.
This is one of the most powerful indicators and when used alongside other TA methods should enable you to become a highly profitable trader. In terms of current WAI outlook, fortunately BTC is currently in a prime position for a demonstration of WAI power. The quilt has been dabbed and the writing will shortly be displayed on the wall…
When using the WAI, it is important to visualise it as an alligators mouth. When a crossover occurs with the lines, they begin to separate – it is feeding time and the mouth is open. Below we can see an example of the alligator’s mouth being open.
BTC/USD – feeding time
When the lines then see a crossover in the other direction, giving constant false signals this shows us that the alligator is full and that the current trend will see a reversal of some sorts. Below we can see that the alligator has its mouth open and is feeding, although once the lines start to crossover in a manner that produces false signals BTC then sees a subsequent trend reversal. In this instance the trend reversal sees BTC move down because the trend before is bullish.
When you eat too much, you are sick and the alligator is no different! If we look at the current BTC chart we can see that the feeding period for BTC is continually decreasing.
BTC/USD WAI E, R, E, R, E – then…
This time, decrease means that the alligator is getting full, it is struggling to eat more in the current trend direction. The alligator will then be sick. When the alligator is sick, the trend will see a large reversal compared to the small scale rest periods.
BTC/USD – the alligator is going to be sick!
WAI current analysis conclusion
From current analysis we can see that BTC has seen an upwards trend. Therefore we are expecting BTC to see a downwards move when the alligator is sick.
Incorporating other TA into the WAI
From the article so far we can see that the alligator is close to being sick. When looking at the current BTC TA we can see that this supports the WAI outlook of a trend reversal. Firstly we can see that BTC is forming an ascending wedge formation. This ascending wedge has a negative pre-trend (points towards a bearish continuation downwards move) and has numerous validation points. The overhead resistance and underlying support are converging as displayed with the angles below. As we edge closer to the end of the wedge, we edge closer to a large move from BTC in a specific direction.
However, when looking at the WAI analysis we have a clear direction indication (downwards), which when incorporated with the ascending wedge (which has around a 75% chance of a negative breakout) our confidence of a downwards break is increased.
- Learn more about wedge formations
BTC/USD ascending wedge & WAI indicator
Another technical analysis method which is highly effective when used alongside the WAI indicator are elliot waves.
So far, we have identified that the alligator is about to be sick and we are in an ascending wedge. This is now validated by the Elliott waves. When using Elliott waves in an ascending wedge we see an (A),(B),(C),(D),(E) move. The end of the ascending wedge is marked by the point (E). From here we then expect to see an (A), (B), (C) corrective move.
Again this points to a move down. Now we have three TA methods which point towards a descending move (this is excluding the long term impulse wave truncation).
BTC/USD – potential movements – WAI, ascending wedge & EWs
The WAI indicator as stated earlier is powerful and should be a part of any traders arsenal who wants to utilise the magic of indicators. However, simply using the WAI, looking only for crossovers will result in poor portfolio performance. Test the WAI (which can be found in the AAX indicators section), find how it works for you and potentially look to incorporate or base your strategy on this excellent indicator.