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Awesome Oscillator: Strategies & Uses


The awesome oscillator is a market momentum indicator that is used to define reversals and corrections of the price. It's one of the easiest but most effective trading tools that provide a wide range of signals.  In this tutorial, we will talk about all the signals the indicator gives and share reliable trading strategies.

What Is the Awesome Oscillator Indicator: Definition

The awesome oscillator is a momentum indicator and one of the leading market indicators which many traders use. The main idea is to compare recent price moves to historical movements.

The awesome oscillator is a momentum indicator. The main idea is to compare recent price moves to historical movements.

The awesome oscillator indicator was developed by well-known Bill Williams. Most likely, you have used his indicators such as Alligator, the Gator Oscillator, Fractals, and the Market Facilitation Index. Traders apply all Williams' indicators to confirm trends and find reliable reversal points. 

Example

Let's see what the indicator looks like. It's a daily chart of the EUR/USD pair. The green bars are bullish, while the red bars are bearish. 1 is the 0 line, which will play a significant role in trading strategies. 

The Awesome Oscillator Indicator: Let’s Count

Although the awesome oscillator is calculated automatically, it's worth knowing how the indicator is built. The formula is simple: AO = SMA5 - SMA34

To calculate the awesome oscillator indicator, you need to subtract a 34-period simple moving average of median prices from a 5-period SMA of median prices. We don't provide an accurate period for moving averages because the indicator can be applied to any period. 

Simultaneously, moving averages are not calculated based on close prices but the midpoints of each used candle. To get a midpoint, you need to add the session's high and low prices and divide the sum by two: Midpoint = (H+L)/2

Awesome Oscillator: Catch Its Signals

The indicator provides a wide variety of signals. That's why traders all around the world use it. Let's consider the signals you can catch applying the awesome oscillator indicator on the price chart.

There are four main indicator's signals. They are 0 line crossover, twin peaks, saucer, and divergence. 

The Awesome Oscillator Strategy: Top Choice

The awesome oscillator indicator can be used for any asset and on any timeframe. Thus, it's implemented in a wide range of strategies. Let's look at the most reliable ones. 

Bullish/Bearish Saucer Strategy

If you read our article carefully, you remember that the saucer signal is based on three bars. 

Twin Peaks of Awesome Oscillator

As for any strategy, two peaks provide signals for bearish and bullish positions. 

If it's a bullish signal, the second low should be higher than the first one. In the case of a bearish signal, the second top is lower than the first peak. 

An important condition is that the histogram after the second low should also be bullish in a bullish signal. In contrast, in a bearish signal, the histogram after the second peak should also be bearish. 

Bullish/Bearish Zero-Line Crossover

As we said above, the crossover of the zero line is also a signal for traders. 

The Awesome Oscillator Trading Strategy: Divergence

Previously we told about the divergence. Now, let's look at a real example and will trade using the divergence. Below you can see the signals divergence provides. 

Type

Price

Indicator

Signal

Regular: a sign of reversal

Bearish

Higher High

Lower High

Potential reversal down

Bullish

Lower Low

Higher Low

Potential reversal up

Hidden: a sign of correction and continuation

Bearish

Lower High

Higher High

A downtrend is likely to resume

Bullish

Higher Low

Lower Low

An uptrend is likely to resume

Look at the chart below. 

The opposite steps are applied for a bullish divergence. 

Find Awesome Oscillator in MetaTrader 4

A big advantage of the Awesome Oscillator is that it's easy to apply it to the price chart. 

If you trade in MetaTrader, here are several steps to implement the oscillator on the chart. The AO is a standard tool. To add the indicator to the chart, click “Insert”', then choose “Indicators”, Bill Williams deserved a separate tab in MetaTrader. Thus, you click “Bill Williams” and choose “Awesome Oscillator”. 

The awesome oscillator is one of the best indicators as it doesn't require changing settings. All you can change is the color scheme. 

The awesome oscillator is one of the best indicators as it doesn't require changing settings. All you can change is the color scheme. Green (for bullish bars) and red (for bearish bars) are used more often, but you can choose any color. It's important you remember what the colors mean. 

The Awesome Oscillator Indicator: Reliable or Not

The awesome oscillator is one of the most reliable indicators, and here is why: 

Although it's not required to change its settings, the AO provides many signals. That's why it's vital to practice before entering the real market. For that, you can open a Libertex demo account. The demo account includes a wide variety of instruments and assets, including forex and CFDs. 

Why to trade with Libertex?

Awesome Oscillator: FAQ

Let's sum up what we have learned. 

How Do You Read Awesome Oscillator?

There are four main indicator's signals. They are 0 line crossover, twin peaks, saucer, and divergence. 

How Is Awesome Oscillator Calculated?

To calculate the awesome oscillator, you need to subtract a 34-period simple moving average of median prices from a 5-period SMA of median prices. 

How to Use Awesome Oscillator in Forex Trading?

The awesome oscillator can be used for any market and on any period. Apply the main signals we listed above. 

How Do I Find Awesome Oscillator in Excel?

Subtract a 34-period simple moving average of median prices from a 5-period SMA of median prices. To get midpoints of the SMAs, you need to add the session's high and low prices and divide the sum by two.

#source


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