Awesome Oscillator

Definition:

The Awesome Oscillator measures market momentum. Its calculation involves determining the moving average of the median bar price over the last five bars of a chart and then subtracting that from the moving average of the median bar price taken over the last 34 bars.

The AO is usually plotted as a histogram in which bars higher than the preceding bar will be colored green. Bars lower than the preceding one will be colored red.

The Awesome Oscillator or AO was developed by psychologist and trader Bill Williams who described it in his book New Trading Dimensions. This trading classic covers how to combine trading psychology and Chaos Theory to better understand and forecast market price movements.

Furthermore, Bill Williams recommended that the Awesome Oscillator be used in conjunction with his Fractals and Alligator indicators. Specifically, the AO only comes into play once an initial Fractal signal gets triggered outside of the Alligator's “mouth.”

Once that criterion is met, the AO can then generate a number of useful trading signals that include Saucer and Twin Peaks buy and sell signals, in addition to crossover signals when the histogram moves over the indicator’s key zero line.

Sample Chart:

Usage:

The Awesome Oscillator has several reliable buy and sell signals that it generates, and the general trading rule with the AO involves not buying when the histogram is red and not selling when it is green.

The Awesome Oscillator generates a so-called “Saucer” buy signal when a histogram above the zero point changes direction from down to up. The signal involves three successive bars, the A, B and C bars. The A bar can be of any color, but should be higher than B which needs to be red. The following C bar must be green to generate the signal. Traders using this signal would then enter a buy order one tick above the high of the price bar corresponding to C.

The Awesome Oscillator generals a “Saucer” sell signal when the histogram that is below the zero point changes direction from up to down. The A bar can be of any color, but needs to be lower than B which must be green. The C bar must be red to generate the signal. Traders using this signal would then enter a sell order one tick lower than the low of the price bar corresponding to C.

A Cross signal is generated by the Awesome Oscillator when the histogram crosses the zero point line from below for a buy signal or from above for a sell signal. Traders noting a buy signal would put a buy order one tick above the high of the price bar corresponding to the first bar which crosses the zero point. A sell signal would generate a sell order one tick below the low of the price bar corresponding to the first bar which crosses the zero point. Signal bars are green for buy signals, red for sell signals.

Finally, the Awesome Oscillator generates a “Twin Peaks” buy signal when the histogram is lower than the zero point, and the last bar’s low is higher than the previous bar. The histogram cannot be higher than zero in between these two bottoms, and this is the only buy signal generated below zero. Traders would put a buy order one tick above the top of the signal bar, which should be green.

The sell signal occurs when the histogram is higher than the zero point, and the last bar’s low is lower than the previous one. Between these two tops, the histogram can never be lower than zero, and this is the only sell signal generated above zero. Traders would put a sell order one tick below the bottom of the signal bar, which should be red.

Calculation Method:

The Awesome Oscillator Indicator shows current market momentum by computing a 34-period simple moving average and subtracting a 5-period simple moving average from it. Each of the moving averages is determined based on the bar midpoints or median prices.

Define:

• n= the number of the time period bar in question.
• High(n)= The high price traded during time period n.
• Low(n)= The low price traded during time period n.
• SMA(A,B)= Simple Moving Average of data item A over B periods.
• MP(n)= Median Price at time period n.
• AO(n)= Awesome Oscillator or momentum at time period n

Calculate:

• MP(n)= [High(n) + Low(n)] / 2
• Awesome Oscillator or AO(n) = SMA(MP(n), 5) - SMA(MP(n), 34)

Practice Awesome Oscillator Trading

Technical analysis with Awesome Oscillator is a demanding skill that requires practice to master. We recommend that you use a demo account to train yourself for free before applying your skills to real money trading.
Most reputale trading platforms today (for example: GFC Trader, AVA Trader, Meta Trader) feature technical indicator functions which can be applied on real-time charts. You can open a free account, download the trading software and start sharpening your technical analysis skills today!

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