Awesome Oscillator | Indicator Series

The Awesome Oscillator is a technical analysis tool that takes short term simple moving averages and compares them to simple moving averages over a longer-term. It is one of several indicators that look back at different time frames to assess the direction and momentum of the market trend. Many of these indicator calculations are based on closing prices. The Awesome Oscillator is different. It is based on simple moving averages of midpoints between the high and the low price. 

Calculating the Awesome Oscillator 

Oscillators work by taking two data points and indicating the trending direction between those two values. The Awesome Oscillator line is calculated by taking the five-period moving average and subtracting the 34-period moving average. The line created by plotting these data points shows where the trend in price change is going. It can also give an idea of the rate at which momentum is increasing. Shorter-term momentum increasing faster than the longer term can be a buying signal. 

Observing where the Awesome Oscillator indicator line crosses the zero line can also provide trading signals. Crossing in an upward direction suggests a good time to buy. Crossing in a downward direction suggests a good time to sell. Another zero line calculation is “Twin Peaks” which evaluates the difference between two consecutive high points on the graph when the trough between them does not cross the zero line. 

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Trading Strategies 

How the Awesome Oscillator is used varies with the individual trading strategy. It can support day traders who need to identify specific buy or sell points in the short term. It is also useful for swing traders whose success depends on riding the trend rather than making quick in-and-out decisions. With this strategy, estimating the point when the trend is about to change direction is critical to success. 

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