Every trader is in business to make money from every investment made. A wise one knows and has the right trading tools in his corner to make sure he accrues maximum returns. With more than 200 Technical Analysis trading tools at your disposal, it is paramount to know which one(s) best suits you and your intentions. In this article, we want to look at the Awesome Oscillator Indicator, what it is, how it is calculated, how it works, and why you should choose it.
What Is the Awesome Oscillator Indicator?
Created by Bill Williams, the Awesome Oscillator (AO) Indicator is a trading strategy used to measure market momentum by calculating the difference between a 34 Period and a 5 Period Simple Moving Average. It uses each bar’s midpoints of the Simple Moving Averages to affirm trends or anticipate possible reversals. (Try out indicators on Tradingview.com)
Unlike typical Moving Averages, the Awesome Oscillator displays the market momentum of the most recent and specific periods instead of many previous periods. It is made in a way to generate figures fluctuating or oscillating above and below a zero line, which are plotted on histograms of red and green bars. A green bar indicates a value higher than the previous one, while a red indicates the opposite.
Awesome Oscillator Indicator | Indicator Series Click To TweetHow Do You Calculate the Awesome Oscillator?
When calculating the AO, there are several AO strategies that you need to look for which will guide you toward the best trade to make. These are:
- The Zero Line Cross, indicating a change in market momentum – it prompts you to sell or buy depending on whether the AO is above or below the Zero Line, simultaneously.
- The Twin Peaks strategy helps you come up with differences when two peaks are on the same side (either below or above) of the Zero Line. When the peaks are below the Zero Line, they are referred to as Bullish Twin Peaks and Bearish Twin Peaks when they are below the Zero Line.
- A Saucer AO Setup helps you identify overly rapid changes in market momentum, characterized by two consecutive red bars. Learn more about the Saucer AO strategy
Awesome Oscillator (AO) = Simple Moving Average (SMA) (Median Price, 5) – Simple Moving Average (Median Price, 34),
where
Median Price = (High + Low)/2
OR
Awesome Indicator = Fast Period – Slow Period, where
Fast Period = (Simple Moving Average (Highest Price + Lowest Price)/2, x periods), and
Slow Period = (Simple Moving Average (Highest Price + Lowest Price)/2, x periods)
An AO histogram above the Zero Line indicates a Bullish Momentum (a buying opportunity), and one below is a Bearish Market Momentum, meaning you have a chance to sell. ( Click this link to access an economic calendar for your trading strategies )
Why Choose the Awesome Oscillator Indicator?
The Awesome Oscillator Indicator:
- It is better at determining market trends since it uses the most recent data.
- You can easily identify and exploit trends by gauging the market momentum and anticipating possible trend reversals.
- It gives you the liberty to manipulate the style and precision of the histogram, thus the red and green bars for better market analysis and decision-making in complex market scenarios.
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