Awesome Oscillator

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Contents

Awesome Oscillator (AO)

Contents

DEFINITION

The Awesome Oscillator is an indicator used to measure market momentum. AO calculates the difference of a 34 Period and 5 Period Simple Moving Averages. The Simple Moving Averages that are used are not calculated using closing price but rather each bar’s midpoints. AO is generally used to affirm trends or to anticipate possible reversals.

HISTORY

The Awesome Oscillator was created by Bill Williams.

CALCULATION

THE BASICS

Because of its nature as an oscillator, The Awesome Oscillator is designed to have values that fluctuate above and below a Zero Line. The generated values are plotted as a histogram of red and green bars. A bar is green when its value is higher than the previous bar. A red bar indicates that a bar is lower than the previous bar. When AO’s values are above the Zero Line, this indicates that the short term period is trending higher than the long term period. When AO’s values are below the Zero Line, the short term period is trending lower than the Longer term period. This information can be used for a variety of signals.

WHAT TO LOOK FOR

Zero Line Cross

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. This indicates a change in momentum.

When AO crosses above the Zero Line, short term momentum is now rising faster than the long term momentum. This can present a bullish buying opportunity.

When AO crosses below the Zero Line, short term momentum is now falling faster then the long term momentum. This can present a bearish selling opportunity.

Twin Peaks

Twin Peaks is a method which considers the differences between two peaks on the same side of the Zero Line.

A Bullish Twin Peaks setup occurs when there are two peaks below the Zero Line. The second peak is higher than the first peak and followed by a green bar. Also very importantly, the trough between the two peaks, must remain below the Zero Line the entire time.

A Bearish Twin Peaks setup occurs when there are two beaks above the Zero Line. The second peak is lower than the first peak and followed by a red bar. The trough between both peaks, must remain above the Zero Line for the duration of the setup.

Saucer

A Saucer AO Setup looks for more rapid changes in momentum. The Saucer method looks for changes in three consecutive bars, all on the same side of the Zero Line.

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A Bullish Saucer setup occurs when the AO is above the Zero Line. It entails two consecutive red bars (with the second bar being lower than the first bar) being followed by a green Bar.

A Bearish Saucer setup occurs when the AO is below the Zero Line. It entails two consecutive green bars (with the second bar being higher than the first bar) being followed by a red bar.

SUMMARY

All in all, The Awesome Oscillator can be a fairly valuable tool. 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 (momentum) 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. That being said, the Awesome Indicator produces quality information and may be a valuable technical analysis tool for many analysts or traders.

HOW TO USE IN TRADINGVIEW

  1. Navigate to https://www.tradingview.com/
  2. On the landing page, enter a symbol and click “Launch Chart”
  3. Within the Toolbar along the top of the chart select “Indicators” and choose the one you would like to add to your chart.
  4. To make changes to your Indicator you will need to access the Formatting Window.
  5. You can access the Formatting Window by either clicking on the Blue “Format” button in the Chart Header next to the Indicator name, or by right clicking on the Indicator in the chart itself and selecting “Format”.

STYLE

Growing

Can change the Growing (Up) Bar’s color and thickness as well as the indicator’s visual type (Histogram is the default). Can also toggle the visibility of a price line showing the current value of the Awesome Oscillator.

Falling

Can change the Falling (Down) Bar’s color and thickness.

Precision

Sets the number of decimal places to be left on the indicator’s value before rounding up. The higher this number, the more decimal points will be on the indicator’s value.

PROPERTIES

Last Value on Price Scale

Toggles the visibility of the Indicator Value on the vertical axis.

Arguments in Header

Toggles the visibility of the indicator’s name and settings in the upper left hand corner of the chart.

Scaling

Scales the indicator to either the Right or to the Left.

Чудесный осциллятор Билла Вильямса (AO)

Индикаторы и стратегии

Чудесный осциллятор Билла Вильямса (AO)

Осциллятор Билла Вильямса (Awesome Oscillator) — это индикатор, используемый для измерения движущей силы рынка. AO рассчитывает разницу между 34 периодами и 5 периодами значения простого скользящего среднего. Значение простого скользящего среднего рассчитывается не по цене закрытия, а по среднему значению цены на одном баре. AO в целом используется для подтверждения трендов или для предупреждения возможных разворотов.

Узнайте больше об Осцилляторе Билла Вильямса (AO).

This is my revision of AO (Awesome Oscillator) that can give more correct and early signals as on my opinion. I’m used a original formula of AO and modified it with high and low prices adding. Enjoy it!

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Reading time: 9 minutes

This article will detail the calculations used to compile the Awesome Oscillator to then move on to applying the indicator in practice. We’ll look at how to use the Awesome Oscillator in MetaTrader 4, as well as useful trading strategies involving the indicator.

What is the Awesome Oscillator Indicator?

The Awesome Oscillator is an indicator that attempts to gauge whether bearish or bullish forces are currently driving the market. It does this by effectively comparing the recent market momentum, with the general momentum over a wider frame of reference.

The Calculations Behind the Awesome Oscillator Indicator

As mentioned previously, the Awesome Oscillator can be viewed as a momentum comparison tool. Specifically, it looks at the last five bars in comparison with the wider time frame of the previous 34 bars. The value of the Awesome Oscillator indicator is calculated as the difference between moving averages over these two time frames. Rather than using closing prices, though, these simple moving averages use the midpoints of the bars (i.e. halfway between the high and the low).

The indicator subtracts the 34-period moving average from the 5-period moving average and plots this value as a histogram. This is a simple ‘look-back’, similar methodologies are used in many effective indicators. Comparing aggregate price information over different time frames can reveal information about the character of the market, that is otherwise not apparent.

Using the Awesome Oscillator Indicator in MetaTrader 4

MetaTrader 4 comes bundled with a package of 30 core indicators, and the good news is that the Awesome Oscillator is one of these standard indicators. This means as soon as you launch MetaTrader 4, the AO indicator is there in the ‘Navigator’ ready to use. The standard indicators that come with MT4 are organised into four main folders in the Navigator. These are:

Although the AO indicator is an oscillator – it’s right there in its name, after all – it is not found in the ‘Oscillators’ folder. This is because the indicator was invented by the well-known technical analyst Bill Williams. Naturally enough, therefore, the Bill Williams Awesome Oscillator is to be found in the ‘Bill Williams’ folder of indicators, as shown in the image below:

Source: MetaTrader 4 – Changing the colours for the Awesome Oscillator

As you can see from the dialogue window, there really isn’t anything to configure, barring the visual features of the histogram, such as the size and colours of the bars. The image below shows an hourly USD/CHF chart with the Awesome Oscillator Forex histogram plotted beneath:

Depicted: MetaTrader 4 – USD/CHF 1 Hour Chart with Awesome Oscillator applied – Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

The default colours are green for an up bar (a bar where the AO value is greater than the preceding bar) and red for a down bar (where the AO value is lower than the tone prior). But how do we use this to aid our trading?

Awesome Oscillator Trading Strategy

The indicator generates a number of different signals that you can put together to form the basis of an Awesome Oscillator strategy for trading Forex — or any other financial market that takes your fancy.

Zero Line Crossover

The simplest signal is when the value of the oscillator crosses the zero level. This gives us two easy-to-follow trading signals:

  1. Crossing from negative to positive is a bullish signal
  2. Crossing from positive to negative is a bearish signal

Twin Peaks Patterns

This strategy requires you to look for two ‘peaks’ on the same side of the zero line. An additional requirement is that the trough between the peaks must also be on the same side of the zero line. A bullish twin peaks signal has the peaks below the zero line, for which the second peak must be higher (less negative) than the first peak. It must also be followed by a green bar. A bearish twin peaks signal is the opposite of this — the two peaks must be above the zero line. Likewise, the second peak must be lower than the first peak, and then followed by a red bar.

Saucers

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. 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. The combination needs to be a green bar, followed by a smaller green bar (i.e. less negative in value), followed by a red bar.

Price and Momentum Divergence

As with most momentum indicators, divergence between the price and the momentum can also be a useful clue as to what’s going on in the market. For example, if we see the price making new highs, but the AO indicator fails to make new highs, this is a bearish divergence. Similarly, if the price sets new lows and the AO fails to follow suit, this is a bullish divergence.

So, by looking out for these particular occurrences, you can use the Awesome Oscillator as a divergence indicator. Now bear in mind that these signals are no cast-iron winners. Think of them as setups, which is to say, specific occurrences in which we have previously observed a tendency for the market to behave a certain way.

There is an increased likelihood when a bearish setup occurs that the market will go lower. Nevertheless, there remains a significant chance that it will rise in such circumstances. Which is to say, a lot of these signals will prove to be incorrect. This is perfectly normal, of course – no indicator can tell you for sure what is going to happen.

Trading the market is, after all, a question of making judgement calls about an uncertain future. One way we can seek to improve the effectiveness of an indicator, it that it can be used in tandem with other indicators. This way, you can see if there is agreement in their findings, and you can then restrict your trades to the signals in which you have high confidence. For example, in the chart below we have combined the MetaTrader 4 Awesome indicator with Keltner Channels:

Depicted: MetaTrader 4 – USD/CHF 1 Hour chart – Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

The dotted vertical line on the chart marks a crossover below the zero line for the AO indicator, and a price breakout below the lower Keltner Channel. The combination of these signals gives us a strong bearish signal. Keltner Channels do not come as standard indicators with MetaTrader 4. They do, however, come as part of the extended package you get with MetaTrader Supreme Edition.

MTSE is an advanced plugin for MetaTrader 4 and MetaTrader 5 that has been specially designed by market professionals to provide a cutting-edge trading experience. Not only does it offer you a wider selection of indicators, but it also gives you upgraded functionality for order handling, tick charts, and backtesting.

Conclusion

This article has detailed several types of signals that you can generate using the AO indicator. Ultimately, you need to experiment with them, and decide on the best way for you to implement them as part of a trading system. Find out for yourself whether the AO is indeed an ‘awesome indicator’ by giving it a test drive with a demo trading account. You may also find it useful to set up notifications for your trading signals. There are a number of custom AO indicators that you can download from the MQL4 community, some of which come with in-built alert functionality. This will likely be the easiest way to create Awesome Oscillator alerts in MetaTrader 4.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Awesome Oscillator

Технический Индикатор Чудесный Осциллятор Билла Вильямса (Awesome Oscillator, AO) — это 34-периодное простое скользящее среднее, построенное по средним точкам баров (H+L)/2, которое вычтено из 5-периодного простого скользящего среднего, построенного по центральным точкам баров (H+L)/2. Он точно говорит нам, что происходит в текущий момент времени с движущей силой рынка.

Сигналы на покупку

“Блюдце” — это единственный сигнал на покупку, который возникает, когда гистограмма находится выше нулевой линии. Необходимо помнить следующее:

  • сигнал “Блюдце” образуется, когда гистограмма меняет направление с нисходящего на восходящее. Второй столбец ниже первого и он окрашен в красный цвет. Третий столбец выше второго и он зеленый;
  • для образования сигнала “Блюдце” необходимо, по крайней мере, три столбца гистограммы.

Помните, что при использовании сигнала на покупку “Блюдце”, все столбцы Awesome Oscillator должны находится выше нулевой линии.

“Пересечение нулевой линии” — это сигнал на покупку, который образуется, когда гистограмма переходит от отрицательных значений к положительным. При этом:

  • чтобы образовался этот сигнал, необходимы только два столбца;
  • первый столбец должен быть ниже нулевой линии, второй столбец должен пересекать нулевую линию (переход от отрицательного значения к положительному);
  • невозможно одновременное наличие сигнала на покупку и на продажу.

“Два пика” — это единственный сигнал на покупку, который может образоваться, когда значения гистограммы лежат ниже нулевой линии. Здесь необходимо помнить следующее:

  • сигнал образуется, когда у вас есть направленный вниз пик (самый низкий минимум), находящийся ниже нулевой линии, за которым следует другой направленный вниз пик, который выше (отрицательное число, меньшее по абсолютному значению, поэтому оно находится ближе к нулевой линии), чем предыдущий пик, смотрящий вниз;
  • гистограмма должна находиться ниже нулевой линии между двумя пиками. Если гистограмма пересекает нулевую линию между пиками, сигнал на покупку не действует. Однако создается сигнал на покупку “Пересечение нулевой линии”;
  • каждый новый пик гистограммы должен быть выше (меньшее по модулю отрицательное число, которое находится ближе к нулевой линии), чем предыдущий пик;
  • если формируется дополнительный, более высокий пик (который ближе к нулевой линии) и гистограмма не пересекла нулевую линию, то образуется дополнительный сигнал на покупку.

Сигналы на продажу

Сигналы на продажу Awesome Oscillator идентичны сигналам на покупку. Сигнал “Блюдце” перевернут, и находится ниже нуля. “Пересечение нулевой линии” идет по убыванию — первый столбец выше нуля, второй ниже. А “два пика” выше нулевой линии и тоже перевернут.

Вы можете проверить торговые сигналы данного индикатора, создав советник при помощи MQL5 Wizard.

Расчет

Гистограмма Awesome Oscillator — это 34-периодное простое скользящее среднее, построенное по центральным значениям баров (H+L)/2, вычтенное из 5-периодного простого скользящего среднего по центральным точкам (Н+L)/2.

MEDIAN PRICE = (HIGH + LOW) / 2

AO = SMA (MEDIAN PRICE, 5) – SMA (MEDIAN PRICE, 34)

MEDIAN PRICE — медианная цена;
HIGH — максимальная цена бара;
LOW — минимальная цена бара;
SMA — простая скользящая средняя.

Bill Williams Awesome Oscillator Strategy – Big Profits, Small Losses

The Bill Williams Awesome Oscillator strategy is a momentum strategy that takes advantage of the most immediate trend. This strategy is similar to our Breakout Triangle Strategy. This is because it will only give you entry signals when the momentum is confirming the price action shift. Our team at Trading Strategy Guides puts a lot of effort into developing strategies that provide you big wins with small losses. In essence, this means that from a risk management perspective, you’ll always trade with a superior risk to reward ratio. The AO Indicator has been called the “super indicator” because of the incredible results some traders have had using it.

The Bill Williams Awesome Oscillator strategy can be applied across different markets; be it stocks, commodities, indices, and Forex currencies. The preferred time frame for the Bill Williams Awesome Oscillator strategy is the daily time frame. This is because, after extensive research and backtesting, our team at Trading Strategy Guides has learned that the daily time frame produces the best performance.

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Before we move forward, we must define the indicators you need to trade the Bill Williams Awesome Oscillator strategy and how to use Awesome oscillator indicator.

The only indicator you need is the:

Awesome oscillator indicator: The Awesome Oscillator indicator is a histogram – that is similar to the MACD indicator – displaying the market momentum of a recent number of periods compared to the momentum of a larger number of previous periods.

If you’re interested in learning more about the MACD indicator, we recommend studying the MACD Trend Following Strategy- Simple to learn Trading Strategy which is an out of the box trend following strategy.

What about the indicator setting?

The Awesome Oscillator indicator uses inbuilt default settings 5 vs. 34 periods.

So, how does it work?

Well, the Awesome oscillator indicator’s histogram (see chart below) is derived from the price chart. The Awesome Oscillator histogram is a 34-period simple moving average. This histogram is plotted through the central points of the bars (H+L)/2, and subtracted from the 5-period simple moving average, graphed across the central points of the bars (H+L)/2.

MEDIAN PRICE = (HIGH+LOW)/2

Awesome Oscillator = SMA(MEDIAN PRICE, 5)-SMA(MEDIAN PRICE, 34)

If the AO histogram is crossing above the zero line, that’s indicative of bullish momentum. Conversely, when it crosses below that’s indicative of bearish momentum.

Now, let’s move forward to the most important part of this article, the trading rules of the Bill Williams Awesome oscillator strategy.

Now, before we go any further, we always recommend to note down the trading rules on a piece of paper.

Let’s get started…

The Strategy Rules

(Rules for A Buy Trade)

Step #1: Check if the Awesome oscillator indicator is below zero

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. Don’t worry, this will start to make more sense to you once we go through all the three rules.

This brings us to the next rule.

Step #2: Check if the Awesome Oscillator Indicator Displays Two Swing Lows and the Second Low is Higher than the First.

Second, you need to check if there are two consecutive swing lows of the awesome oscillator histogram and the second low is higher than the first one. These two swings will form the twin peaks and from here comes the term Awesome Oscillator Twin Peaks.

There is one more rule for the Awesome oscillator Twin Peaks pattern to be validated.

Step #3: Check if the Awesome Oscillator Indicator histogram after the Second Low is Green

We need the Awesome oscillator indicator histogram after the second low to immediately turn green. This will validate the Awesome oscillator Twin Peaks pattern. When the AO histogram turns green it indicates buyers stepping in, but only a break above the zero line will signal a real shift in the market sentiment.

Now the Awesome oscillator Twin Peaks pattern has completed. But, we still don’t have confirmation that the buyers have taken the lead, which brings us to the next step of the Bill Williams Awesome oscillator strategy.

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

As we already learned, the Awesome oscillator indicator fluctuates between positive momentum when trading above the zero line and negative momentum when trading below the zero line. You can notice that the AO histogram bars can change from green to read while she stays above/below the zero line. This indicates various degrees of momentum strength; However, the real shift in sentiment happens once the AO histogram crosses above the zero line which is why this is our entry signal.

At this point, your trade is opened, but we still need to determine where to place our protective stop loss and take profit orders, which brings us to the next step of our strategy.

Step #5: Place Your Protective Stop Loss below the Most Recent Swing Low which Should Align with the Second Swing Low of the AO Twin Peaks Pattern.

The Awesome oscillator histogram should normally align with the price action. In this regard whenever the price forms a swing low this should be visible in the AO histogram as well.

We don’t want to add any buffer below the swing low level because any slightly break below the swing low will invalidate the AO Twin peaks pattern.

Now, the only component that needs to be clarified is where to take profit, which brings us to the final step of the Bill Williams Awesome oscillator strategy.

Step #6: Take Profit as Soon as the Awesome Oscillator Histogram Posts Two Consecutive Red Bars

We take profit at the earliest sign that the market is showing us the first sign of weakness. In this regard, when the AO histogram post two consecutive red bars we want to close our position and take profit as there is a high probability the market will reverse from thereafter.

Note** The above was an example of a buy trade… Use the same rules – but in reverse – for a sell trade. In the figure below you can see an actual SELL trade example using the Bill Williams Awesome oscillator strategy.

The Bill Williams Awesome oscillator strategy is a great strategy if you’re a momentum trader. We’re not looking to catch tops and bottoms, but we seek to enter the market when the momentum has shifted in our favor. This is a more sophisticated way to trade breakouts because breakouts also signal a shift in momentum. If you’re a fan of breakout trading, we recommend reading the Breakout Triangle Strategy, which will teach you how to correctly trade breakouts.

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 superior risk to reward ratio.

Thank you for reading!

Please leave a comment below if you have any questions about Bill Williams Awesome Oscillator Strategy!

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