Awesome Oscillator Indicator Strategies

Awesome Oscillator Indicator Strategies
Awesome Oscillator Indicator Strategies

The aptly named Awesome Oscillator is an amazing technical analysis indicator designed to measure the underlying market momentum as well as to confirm trends and anticipate reversals.

The Awesome Oscillator was developed by the legendary chartist Bill Williams, who described it as the ‘best momentum indicator’ that is ‘as simple as it is elegant’.

The Awesome Oscillator is based on a combination of moving averages, but its ‘awesomeness’ is illustrated by the clear and straightforward trading signals that it generates.

As its name suggests, the Awesome Oscillator belongs to the broader group of oscillators, which consists of indicators such as the RSI, Stochastics and MACD. But while most oscillators usually swing between defined values such as ‘0 to 100’ or ‘-100 to +100’, the Awesome Oscillator is unbounded.

Other popular Bill Williams’ indicators include the Accelerator Oscillator, Fractals, Gator Oscillator, Alligator and the Market Facilitation Index.

Calculating the Awesome Indicator

By definition, the Awesome Oscillator is a 34-period simple moving average subtracted from a 5-period simple moving average. The awesome part may well be that simple moving averages are plotted using median prices of candlesticks rather than the typical closing price.

This essentially means that the 34-period simple moving average is a smoothed line of the mid-points of the last 34 candlestick bars, whereas the 5-period simple moving average is a smoothed line of the mid-points of the last 5 candlestick bars.

The formula to calculate the Awesome Oscillator is as follows:

Awesome Oscillator = SMA (MEDIAN PRICE, 5)-SMA (MEDIAN PRICE, 34)

Where:

SMA = simple moving average

Median Price = (HIGH+LOW)/2

The Awesome Oscillator (AO) is then plotted as a histogram that swings above and below the 0 centreline, and it prints red and green bars. Like candlesticks, green bars indicate that the AO is higher than the previous bar, while a red bar shows that the AO is lower than the previous bar.

Reading the Awesome Oscillator

Because it plots the difference between a fast-moving and slow-moving average, the Awesome Oscillator prints both negative and positive values. Basically, a positive reading implies that the fast-moving average (5-period) is greater than the slow-moving average (34-period); likewise, a negative reading implies that the slow-moving average is greater than the fast-moving average.

Thus, the basic interpretation of the Awesome Oscillator is that a reading above zero confirms an uptrend is in place, whereas a reading below zero confirms a downtrend is intact.

The bar colours of the Awesome Indicator are based on indicator values within a certain period. Thus, it is possible to have red bars above zero, and green bars below zero. A rising green histogram indicates that the Awesome Oscillator value is higher than the previous bar, whereas a falling histogram indicates that Awesome Oscillator value is lower than the previous bar.

Trading Awesome Oscillator Signals

Here are the best signals to trade with when using the Awesome Oscillator:

  1. Zero Line Crosses
    This is a straightforward strategy because of the computation of the Awesome Oscillator. A cross above zero confirms that an uptrend has formed, and traders should seek opportunities to place only buy orders in the market; whereas a cross below zero confirms that a downtrend has formed in the market and traders should only seek to place sell orders.
  1. Saucer Strategy
    The Awesome Oscillator serves ‘Saucer’ buy and sell opportunities using 3 histogram bars as follows:

Buy Signal Conditions

  • The Awesome Oscillator is above zero
  • Two consecutive histogram bars are red (falling)
  • The third histogram bar is green and higher than the second one
  • Place a buy order on the open of the fourth bar

Sell Signal Conditions

  • The Awesome Oscillator is below zero
  • Two consecutive histogram bars are green (rising)
  • The third histogram bar is red and lower than the second one
  • Place a sell order on the open of the fourth bar

The saucer strategy helps in picking out optimal trade entry points in a trending market and is designed to ensure traders capture trading opportunities when there is a quick change in the price momentum.

  1. Twin Peaks

This strategy enables traders to pick out high probability contrarian opportunities in the market. The strategy requires that the Awesome Oscillator forms two peaks and a trough, all on the same side of the zero-line.

A bullish twin peak will form below the zero-line, with the second peak higher than the first one and followed by a green bar. On the flip side, a bearish twin peak forms above the zero-line, with the second peak being lower than the first one and followed by a red bar. A bullish twin peak is a signal to place a buy order, while a bearish twin peak is a signal to place a sell order.

Awesome Oscillator Combinations

As a pretty comprehensive indicator, the Awesome Oscillator can be made even more effective when combined with other technical analysis tools. It can be paired with another oscillator that shows overbought and oversold conditions, such as Stochastics or RSI, so as to trade zero-line and saucer trading signals more efficiently. A buy signal will be more qualified when the oscillator shows oversold conditions, whereas a sell signal will carry more weight when the oscillator indicates overbought conditions.

When trading the twin peak strategy, traders enter a possible new trend early. When combined with the ATR (average true range), the Awesome Oscillator twin peak signals can be traded with definitive price exit targets so traders can enjoy the full rewards of an early entry.

Trading with Awesome Oscillator at AvaTrade

The Awesome Oscillator is available on the  AvaTrade platforms alongside other popular Bill Williams indicators. Here is why you should trade with this ‘awesome indicator’ at AvaTrade:

  • A Globally Regulated Broker. Licensed in the EU, Australia, Japan, the British Islands and South Africa.
  • Robust Platforms. Use the Awesome Oscillator on advanced trading platforms that have automated trading integrated.
  • Multiple Assets. Apply the Awesome Oscillator on over 1,000 financial assets that include Forex, Stocks, Commodities, Indices and Cryptocurrencies.
  • Education. Get comprehensive and relevant education and trading resources on how to apply the Awesome Oscillator and many other strategies when trading your favourite assets.
  • Demo Account. Try out Awesome Oscillator strategies in a live simulated market using virtual funds with no risk.

** Disclaimer – While due research has been undertaken to compile the above content, it remains an informational and educational piece only. None of the content provided constitutes any form of investment advice.