Awesome Oscillator Indicator: What Is It & How Does It Work?

The green bar will often serve as a buy signal, with traders trying to ride the upward momentum to achieve a profit. The price chart below gives an example of a bullish twin peak awesome oscillator pattern. The bullish market momentum is indicated by green bars on the Awesome Oscillator price chart, while the bearish market momentum is indicated by red bars on the Awesome Oscillator price chart. The green and red bars are plotted above and below the zero line on the basis of calculating a fast-moving average and a slow-moving average as their difference.

  1. Next, EGY spikes lower giving the impression the stock was going to fill the gap.
  2. 69% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider.
  3. The formula compares two moving averages, one short-term and one long-term.
  4. Momentum indicators give analysts a better idea of a trend’s strength, which can be a great indicator of future price movements.
  5. For example, experienced traders don’t recommend buying assets if the last bar on the current chart is red, or selling assets when the last bar is green.

This strategy searches for quick changes in the momentum and requires a specific pattern in three consecutive bars of the AO histogram, all on the same side of the zero line. The saucer strategy involves looking for changes in three consecutive bars that are on the same side of the zero line. A bullish saucer requires all three bars to be on the positive side of the zero line. The construction you are looking for is a red bar, followed by a smaller red bar, followed by a green bar. A bearish saucer requires all three bars to be on the negative side of the zero line.

Awesome Oscillator (AO)

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Step #4: Wait for the Awesome Oscillator Histogram to Break above the Zero Line Before Buying at the Current Market Price.

Price Oscillator Definition The price oscillator indicator displays the difference of two moving averages in either points or in percentages. Another way to use Awesome Oscillator in your trading strategy is to spot divergences. When the price draws a new extreme, and the Oscillator shows the opposite dynamics, this indicates a fading trend and a high probability of movement in the opposite direction.

Learn more about Next Generation’s charting features through our platform tutorials. The awesome oscillator is a type of technical indicator​​ that was invented by Bill Williams as a method for trading stocks, forex and commodities. He also developed the accelerator oscillator, which works in a similar way to the awesome oscillator. These days, the indicator can be used for all financial markets, including those mentioned above. Many timeframes can be used to set the awesome oscillator, whether this be minutes (extreme short-term), hours (short-term), days (medium-term) or months (long-term).

If the awesome oscillator crosses above the zero line, this signals bullish momentum, but if it crosses below the zero line, this signals a bearish momentum. This can easily change, so the awesome oscillator aims to detect whether a trend is continuing or starting to reverse. The below chart shows how green lines indicate bullish momentum and red lines indicate bearish momentum on a price chart. The awesome oscillator is a technical indicator that is used within the financial markets to confirm or disprove trends on price charts. These charts compare current data to historic data with the aim of predicting momentum in the markets.

How to use ‘Awesome Oscillator’ in trading strategy

The AO provides traders with signals based on the positive and negative values of the indicator, as well as bullish and bearish divergences (as highlighted above). A bullish saucer can be identified by the Awesome Oscillator positioned above the zero line followed by two consecutive red bars. The second red bar tends to be lower than the first and is followed by a green bar. Traders often try and enter long positions during the third bar or in the red bar immediately preceding it.

Thanks to its comprehensive visuals and customization, AO can be applied to any timeframe, but proves to be particularly useful for short- and mid-term trading. For example, a buy signal happens when the histogram goes from the area of negative values to the positive area (crosses the zero level from the bottom up). In this case, a stop-loss should be placed above the high of the price, which corresponds to the first column in the positive zone. On the other hand, when the awesome oscillator goes from the positive zone to the negative zone, you should consider opening a short position. There are some key differences in the calculations of the MACD from the AO that lead them to be more effective in differing situations. The MACD uses EMAs, which give more weight to recent price data, while the AO uses SMAs, which give equal weight to all price data within the specified period.

With the help of the awesome oscillator, you can easily recognize the current trend direction. However, as with any trend-following indicator, there is a risk that the awesome oscillator will “lag” the current price movement and generate multiple false signals. Hence, the awesome oscillator displayed the market momentum by means of the inversión a largo plazo histogram bars moving relative to the zero line. Each bar stands for a single period and will be green when the day’s average is higher than on the previous day (and vice versa for the red color). Its values change relative to the zero line, the color of its columns also changes depending on the price dynamics (usually green and red).

Moreover, the most popular Bill Williams Awesome Oscillator strategy is trading the Awesome Oscillator Twin Peaks pattern because, most of the time, it signals trades with a superior risk-to-reward ratio. The AO saucer signal helps you identify pure momentum continuation trades. In other words, if you miss the boat on a trend signal, the Awesome Oscillator saucer will give you a second chance to enter a trend or simply build up your Forex position. Now, you might be familiar with the zero-line crossover signal since this is a common trade signal with many technical indicators. The simplest and most straightforward way to use Williams’ Awesome Oscillator is the crossover of the zero line.

Imagine that a trader is analysing the price chart of a stock and notices that the AO value is positive. This indicates that the 5-period SMA of the midpoint price is above the 34-period SMA, indicating a bullish trend. In this scenario, the trader might choose to enter a long position, as the market is likely to continue moving upwards. The saucer trading signal allows analysts to identify rapid market momentum changes by looking for changes in three consecutive bars on one side of the zero-line. Cryptocurrencies usually experience something similar, but since liquidity in these markets is much lower, many corrective moves correlate to early investors and whales selling off to reel in profits.

Basically, the Awesome Oscillator measures the immediate momentum of the last 5 bars and compares it to the momentum in the last 34 bars. The Awesome Oscillator indicates if bulls or bears are in control of the market. 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.