What is the Awesome Oscillator: Definition, Use, and Strategies

They decide on the best way for you to implement as part of a trading system. Find out for yourself whether the AO is indeed a great indicator for you. The script identifies RSI divergences, similar to other public scripts; however, RSI failure swings are also distinguished.

The saucer strategy focuses on identifying movement in three consecutive periods on the same side of the zero line. However, this strategy is far from fool-proof and should be used in conjunction with other technical indicators and fundamental analysis. We research technical analysis patterns so you know exactly what works well for your favorite markets. It is a straightforward method because of the computation of the Awesome Oscillator. The oscillator attempts to measure if bullish or bearish forces are regularly driving the market.

The bar colors of the AO indicator are based on indicator values within a particular time. Therefore, it is possible to have red bars over zero, and green bars lower point zero. An increasing green histogram shows that the AO value is more than the initial bar. While a falling histogram shows that the value of the AO is less than the previous bar. As you have probably already guessed, of the three most common awesome oscillator strategies, we vote this one the highest.

A positive reading means that the fast-moving average (5-period) is more than the slow-moving average (34-period). Also, a negative reading indicates that the slow-moving average is more than the fast-moving average. On the other hand, red bars with a decline in value means the market is under the control of the bears.

How to use ‘Awesome Oscillator’ in trading strategy

That being said, the Awesome Indicator produces quality information and may be a valuable technical analysis tool for many analysts or traders. By comparing recent market momentum with the general momentum over a wider time frame, the Awesome Oscillator provides traders and analysts with a convenient picture of the market’s mindset. The Awesome Oscillator’s primary use is to measure market momentum, but investors can also use it to affirm trends and even anticipate potential reversals. Instead of directly tracking the difference in market price, the Awesome Oscillator calculates the difference between a long and short-term moving average drawn using each bar’s midpoints. Williams developed the AO as a simple way to measure market momentum and identify potential reversals by comparing a 34-period simple moving average from a five-period simple moving average.

A bullish saucer is made up of a red bar, followed by a smaller red bar, then by a green bar. A bearish saucer is made up of a green bar, followed by a smaller green bar, and then followed by a red bar, all of them have to be lower than 0. Awesome Oscillator signals to sell are identical to the signals to buy. Zero line crossing is on the decrease — the first column of it is over the zero, the second one is under it. The twin peaks signal is higher than the zero line and is reversed too. Awesome oscillator uses the 34-period and 5-period simple moving average while the MACD indicator uses 26-period and 12-period exponential moving averages along with the 9-period signal line.

This 5-minute chart of Twitter illustrates the main issue with this strategy, which is that the market will whipsaw you around like crazy. Choppy markets plus oscillators equal fewer profits and more commissions. We are also going to look at how the AO is different from other oscillators, as well as key trading strategies involving statistically sound machine learning for algorithmic trading of financial instruments the indicator. A buy signal is much stronger when supported by an oversold market, while overbought markets add credence to the oscillator reporting a sell signal. The most straightforward, basic signal generated by the Awesome Indicator is the Zero Line Cross. This is simply when the AO value crosses above or below the Zero Line.

Momentum is one of those aspects of the market that is crucial to understanding price movements, yet it is so hard to get a solid grip on. AO can be used in some instances to generate quality signals but much like with any signal generating indicator, it should be used with caution. Truly understanding the setups and avoiding false signals is something that the best traders learn through experience over time.

Awesome Oscillator (AO) – indicator for MetaTrader 5

Like any trading signal, divergences don’t guarantee any future price action and are taken more as scenarios that have a likelihood of causing the market to behave a certain way. This essentially means that its signals will be wrong a lot of the time, but a divergence can give traders the clarity they need to place their investments in ideal google java style guide positions, given the right circumstances. When there are two momentum peaks below the zero-line, it is called a bullish twin peak, and some traders believe a green bar following the second peak signifies a potential break above the zero-line. Due to how oscillators function, the Awesome Oscillator reports values above and below a zero line.

After the break, the stock quickly went lower heading into the 11 am time frame. Going back to the crossing of the 0 line, what if we could refine that a little to allow us to filter out false signals, as well as buy or short prior to the actual cross of the 0 line. The saucer strategy is slightly better than the 0 cross, because it requires a specific formation across three histograms.

What is the Awesome Oscillator: Definition, Use, and Strategies

At a minimum, these studies indicate at least 50% of aspiring day traders will not be profitable. This reiterates that consistently making money trading stocks is not easy. Day Trading is a high risk activity and can result in the loss of your entire investment. The Awesome Oscillator’s signals don’t always reflect the market’s immediate actions, which allows the indicator to detect market divergences – a powerful power trend broker tool in the hands of any skilled trader or analyst. A divergence occurs when the Awesome Oscillator reports momentum that doesn’t conform with recent price action and can often indicate a reversal or corrective move soon. A bearish twin peak takes place when two green peaks are observed above the zero-line, and similar to its bullish counterpart, is followed by a red bar under the zero-line – the sell signal.

• AO can be used in some instances to generate quality signals but much like with any signal generating indicator, it should be used with caution.
• This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.
• So, to this point, let’s walk through a few examples where the trusted awesome oscillator indicator will have you on the wrong side of the trade.
• A bullish saucer is made up of a red bar, followed by a smaller red bar, then by a green bar.

In short, if you see the price of a security going up and making new higher highs, but the AO is making new lower highs, you have a divergence. AO indicator provides a number of signals that help to predict corrections and reversals of the price. This indicator works under the premise that as momentum begins to slow, fewer sellers or fewer buyers are willing to trade at the current price. This isn’t necessarily the Awesome Oscillator’s fault, as low float securities move erratically over short periods. In fact, most indicators have a hard time with small-cap investments, but this makes it near impossible to use the Awesome Oscillator in crypto markets without pairing it with more reliable tools. Of course, like all technical indicators, the AO indicator is never a guarantee of future market performance.

How to use Awesome Oscillator?

While it cannot protect investors against external market events, it’s always important to know when a momentum indicator signals a fundamental shift in sentiment over a temporary price movement. Awesome Oscillator is developed by famous technical analyst and charting enthusiast Bill Williams. Awesome Oscillator is an indicator that is non-limiting oscillator, providing insight into the weakness or the strength of a stock. The Awesome Oscillator is used to measure market momentum and to affirm trends or to anticipate possible reversals. It does this by effectively comparing the recent market momentum, with the general momentum over a wider frame of reference.

This is largely down to the liquidity of the investment in question, but the Awesome Oscillator trips horribly in markets where even small trades push the market in a particular direction. Also very importantly, the trough between the two peaks, must remain below the Zero Line the entire time. Understanding the underlying formula used for construction of Awesome Oscillator helps traders take prudent decisions while trading in complex scenarios. Calculating the indicator is no longer required as charting platforms and trading software do it for us. The Awesome Oscillator is useful for technical analysis because it takes more standard momentum oscillators and adjusts the calculation in order to strengthen a common weakness among them.

Like all technical indicators, it is important to use the AO in conjunction with other technical analysis tools.

The formula compares two moving averages, one short-term and one long-term. Comparing two different time periods is pretty common for a number of technical indicators. That’s right folks, not an EMA or displaced moving average, but yes, a simple moving average.

Saucer is another signal that can be used for early trend forecasting. When the AO is above zero and two consecutive red bars are followed by a green one, the saucer is considered to be bullish. VWAP Oscillator – Awesome Oscillator but using different period Volume Weighted Average Price values instead of moving averages.

One point to clarify, while we listed x in the equation, the common values used are 5 periods for the fast and 34 periods for the slow. Each new pike of the bar chart is to be higher than the previous pike. Keep in mind, that all Awesome Oscillator columns should be over the nought line for the saucer signal to be used. Simultaneous generation of signals to buy and to sell is impossible. Keep in mind, that all Awesome Oscillator columns should be over the zero line for the saucer signal to be used. Both divergence can be invalidated if a curve on our awesomeoscillator go over the green horizontal line.

In a related article on Stocktwits Blog , see how day trader Dave Kelly describes trading low float stocksand the level of volatility with these securities. Many of you may trade larger caps rather than low float stocks, because you’re able to scale in with larger size with low volatility plays. However, we know low float movers are a big deal in the day trading community.

Can also toggle the visibility of a price line showing the current value of the Awesome Oscillator. First, we want to make sure the Awesome Oscillator indicator is below zero. This first rule is part of a three-rule pattern called the Awesome Oscillator Twin Peaks. Now, let’s move forward to the most important part of this article, the trading rules of the Bill Williams Awesome oscillator strategy. A buy signal will be more qualified when the oscillator shows oversold situations.

As a detailed indicator, AO indicator can be even more efficient when used with other technical analysis tools. It can pair with another oscillator that shows oversold and overbought situations such as RSI or Stochastics. This can make it possible to trade zero-line and saucer trading signals more efficiently. Besides determining the direction of the market momentum, it also signals the strength level of the momentum. The bars turn yellow with an increasing value means the bulls are in control of the market.

This indicator fluctuates between bullish momentum when trading above the zero line and bearish momentum when trading below the zero line. In cryptocurrency markets, events like a successful protocol upgrade or governance voting systems’ results can positively or negatively affect momentum. 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. In traditional markets, new of growth in corporate profits could increase equities momentum, while a rise in interest rates can catalyze negative price momentum. A company can also induce positive momentum by announcing its debt obligations or an increased projected cash flow.

The Moving Average Convergence Divergence is both a momentum and trend following indicator.It is calculated by… Every forex trader constantly searches for the answer for this question…. Having ordinary AO indicator, even without seeing the graph, you can know what to do to buy or sell, look at the histogram display. The index is not one of the more popular indicators, but that does not mean it lacks accuracy.