Awesome Oscillator AO: What it is and How to trade with it?

The awesome oscillator is calculated by subtracting the 34-period simple moving average (SMA) from the 5-period SMA. The big difference from a standard calculation is awesome oscillator uses the median price points (the high plus low price divided by 2) of each candle rather than just the closing price. Using the awesome oscillator to scalp is an effective way to capitalize on short-term momentum shifts in the market.

He is also the man behind the development of the accelerator oscillator that works similarly to the Awesome Oscillator. The Awesome Oscillator was created by Bill Williams, a popular technical analyst, and has become one of the preferred tools among traders for its reliability and simplicity. Like all other technical indicators, it is typically deployed as part of a bigger trading system to devise a strategy. Usually, a major explosion of the Awesome Oscillator in any direction is an extremely strong signal of a trend. In these cases, whether it’s a charging bull or a raging bear — stay out of the market’s way. It’s also vital to use stops when trading; there’s no reason to let the market take advantage of your funds without you having a say in it.

Many of his indicators and other technical analysis tools are usable in a wide range of market scenarios. In fact, they apply to all kinds of markets, including stocks, commodities, forex, indices, and even cryptocurrencies. When both indicators show a crossover in the same direction (e.g., both crossing above zero), it provides stronger confirmation of a trend’s momentum. For instance, if the AO crosses above the zero line and the MACD line crosses above the signal line, it strengthens the signal for a bullish trend. The awesome oscillator measures momentum and generates trading signals by comparing short-term and long-term momentum. There are three main patterns traders follow when reading the oscillator.

AO Trendline Cross

The AO provides traders with signals based on the positive and negative values of the indicator, as well as bullish and the signal and the noise bearish divergences (as highlighted above). This oscillator is useful for intraday strategies because it helps traders identify possible trend changes and momentum. This is a more or less reliable tool that can be used as a part of your trading strategy for confirming a price action. Bill Williams called it “without doubt, the best momentum indicator available in the stock and commodity markets”. This oscillator was created to evaluate market momentum and define potential trend reversals by comparing a 34-period simple MA to a 5-period simple MA. The simple moving average is calculated by adding the average price of each day and dividing the sum by the number of days from the chosen period.

• Moreover, the Awesome Indicator incorporates the median price of a set of candlesticks instead of the closing price which other indicators use.
• Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it.
• Conversely, when selling momentum takes the reigns, the histogram colour changes from green to red and crosses the zero line from positive to negative in a sea of red bars.

Volume Weighted Average Price (VWAP)

The practice of using the indicator shows that it is most often lagging during high volatility in the market. The AO uses the median price in its calculations, while the MACD uses an exponential moving average. The use of EMA means that MACD can react faster to price changes compared to the Awesome Oscillator.

Predict future price momentum with The Awesome Oscillator

Another key benefit of the awesome oscillator is that it works in different market conditions, whether prices are trending or range-bound. However, it’s worth noting that in sideways markets, the indicator tends to be less useful as we see with some other indicators such as moving averages. On the other hand, a bearish saucer can be identified by two consecutive green bars below the zero line – with the second bar being lower than the first – which are immediately followed by a red bar. The awesome oscillator saucer is a trading signal that many analysts use to identify potential rapid changes in momentum. The saucer strategy involves looking for changes in three consecutive bars that are on the same side of the zero line. The Awesome Oscillator is simple to use and can be applied to various asset classes, making it a versatile tool for traders.

Some of you might believe that buying whenever it rises above and selling whenever it falls below can be beneficial. It is in theory, but without confirmation, one shouldn’t depend on any single AO indicator. Furthermore, using this strategy in conjunction with other fundamental analyses and indicators is preferred. The oscillator is usually used to verify a short-term momentum; however, can also be employed to anticipate a possible trend reversal. The Awesome Oscillator is a popular technical analysis indicator developed by a trader named Bill Williams.

The awesome oscillator formula works from a 34-period simple moving average (SMA) of median prices, which is subtracted from a five-period SMA of median prices. Consequently, these price movements are displayed on the histogram with two simple moving averages presented and compared. When the 5-period SMA is greater than the 34-period SMA, the histogram gets above zero, which is considered a bullish signal. In the opposite case, when the histogram dives below zero, and the short-term average is less than the long-term average, we see a bearish market coming.

The market’s momentum reflects the velocity of price changes, but history has shown that momentum is a much more reliable indicator in rising markets than falling ones. A Bullish Twin Peaks setup occurs when there are two peaks below the Zero Line. The second peak is higher than the first peak and followed by a green bar. Also very importantly, the trough between the two peaks, must remain below the Zero Line the entire time. This formation often suggests that a small recovery or pause in momentum is over and that bearish pressure is resuming. Traders use this as a signal to go short or reinforce existing bearish positions.

• The Awesome Oscillator has its strengths and weaknesses, just like any other tool.
• This suggests the bearish momentum is weakening and could be turning bullish.
• The value of a 34-period slow moving average is subtracted from the value of the 5-period fast moving average.
• The second peak should be lower than the first to signal a bearish market, and higher for a bullish market.
• Finally, traders should pay attention to the size of the histogram bars—bigger green bars mean strong bullish momentum, while deeper red bars show stronger bearish momentum.

Half Trend Indicator Explained: Forex Trading Tool Guide

Some of his other indicators include the Bill Williams Alligator, Fractals, the Gator Oscillator and the Market Facilitation Index. This is for informational purposes only as StocksToTrade is not registered as a securities broker-dealer or an investment adviser. Alerts can be set to inform residents of specific trading opportunities or risks. Execution of trades should comply with local regulations and warranty terms to ensure that residents’ rights are not violated. On other platforms, you can choose the optimal settings depending on your trading strategy. If the price bounces from the channel boundary, goes to its middle and breaks through it, there is a strong impulse trend.

Awesome Oscillator as a Divergence indicator

The Awesome Oscillator is a versatile and accessible tool for traders looking to understand market momentum. It offers various strategies for identifying trends, reversals, and potential entry and exit points. However, like all trading tools, it has its limitations and should be used as part of a diversified trading strategy. Because of its nature as an oscillator, The Awesome Oscillator is designed to have values that fluctuate above and below a Zero Line.

IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority. Traders will usually open a short position when the awesome oscillator crosses from above to below the zero line. Alternatively, they will open a long position when the awesome oscillator crosses from below to above the zero line. StocksToTrade in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, StocksToTrade accepts no liability whatsoever for any direct or consequential loss arising from any use of this information.

Awesome oscillator divergence

Despite its attractive name, the oscillator differs little from the well-known MACD. The Awesome Oscillator needs to display a trough, then two peaks, for this strategy to be effective. Here are a few strategies based on the Awesome Oscillator, which you can implement in your trades. Hantec Markets does not offer its services to residents of certain jurisdictions including USA, Iran, Myanmar and North Korea.