How to use ‘Awesome Oscillator’ in trading strategy

When AO’s values are below the Zero Line, the short-term period is trending lower than the longer-term period. 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 to simply build up your forex position. The simplest and most straightforward way to use Williams’ Awesome Oscillator is the crossover of the zero line.

• 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.
• In fact, most indicators have a hard time with small-cap investments, but this makes it near impossible to use the Awesome Oscillator in crypto markets without pairing it with more reliable tools.
• If a bar above the zero line is larger than the previous bar, this is shown in green.
• More commonly, AO is used in conjunction with other oscillators and indicators, and also has signal filtering functions.

This is because it will only give you entry signals when the momentum is confirming the price action shift. Momentum trading strategies offer traders an easy way to exploit short and mid-term trends. The most successful day traders are the ones who have developed an edge, and this is where profitable stock trading strategies and simple market analysis come into play. The Awesome oscillator is one of the best momentum indicators that you can rely on for amazing results. The oscillator is depicted as a histogram consisting of red and green bars . The bar is colored green if it is higher than the previous one, and red if it is lower.

What is the Awesome Oscillator Settings?

This indicator uses a zero line in the centre, either side of which price movements are plotted according to a comparison of two different moving averages. The oscillator builds its bars above and below the zero line depending on whether the 5-period MA is above or below the 34-period MA. In the first case, AO will have a positive value, and its bars will line up above the zero line.

Like any trading signal, divergences don’t guarantee any future price action and are taken more as scenarios that have a likelihood of causing the market to behave a certain way. When there are two momentum peaks below the zero-line, it is called a bullish twin peak, and some traders believe a green bar following the second peak signifies a potential break above the zero-line. Traders will try and enter short positions during the third bar or in the green bar immediately preceding it. 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. Put plainly, momentum cannot predict price movement but instead reflects the overall market’s sentiment. While it cannot protect investors against external market events, it’s always important to know when a momentum indicator signals a fundamental shift in sentiment over a temporary price movement.

He was also responsible for developing the Bill Williams Alligator, the Market Facilitation Index, the Fractals indicator, and the Gator Oscillator. Many of his indicators and other technical analysis tools are usable in a wide range of market scenarios. In fact, they apply to all kinds of markets, including stocks, commodities, forex, indices, and even cryptocurrencies. Price movements are then plotted on the histogram in accordance to the two SMAs according to the comparison of two simple moving averages. When we have bullish peaks, the awesome oscillator indicator is below the zero line.

If the current value of AO is above previous, the period is considered suited for buying and the period is marked blue. If the AO value is not above previous, the period is considered suited for selling… The awesome oscillator can be used for any market and any period. Although settings don’t need to be changed, the AO provides many signals. That’s why it’s vital to practice before entering the real market.

Bill Williams Awesome Oscillator Strategy – Big Profits, Small Losses

This approach would keep us out of choppy markets and allow us to reap the gains that come before waiting on confirmation from a break of the 0 line. Let’s look at a chart example to see the cross of the 0 line in action. You, however, reserve the right to use whatever periods work for you, hence the x in the above explanation.

Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries.

As mentioned above, it is plotted as a histogram with green and red denoting positive and negative differences. The Awesome Oscillator is an indicator used to measure market momentum. AO calculates the difference of a 34 Period a complete guide to the futures markets 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.

Bearish twin peaks – this set-up appears when there are two peaks above the zero line and the second peak is lower than the first one and is followed with a red bar. Also, the pullback between the peaks should remain above the zero line. The Awesome Oscillator is also known to be difficult to use with assets with a small circulating supply or ‘low float’ stocks. This is largely down to the liquidity of the investment in question, but the Awesome Oscillator trips horribly in markets where even small trades push the market in a particular direction. The Awesome Oscillator is undoubtedly a powerful and versatile tool that should be part of any investor’s toolkit, but it only takes one bad trade to wipe out all of your profits. For contrarian traders, an extremely high Awesome Oscillator reading may come across as a signal for a potential reversal, but this can be a bad way of using the indicator.

Calculating the indicator is no longer required as charting platforms and trading software do it for us. The Awesome Oscillator is useful for technical analysis because it takes more standard momentum oscillators and adjusts the calculation in order to strengthen a common weakness among them. However, it really becomes most effective when confirming signals or conditions is identified by additional technical analysis. Like all technical indicators, it is important to use the AO in conjunction with other technical analysis tools.

If you are a contrarian trader, a high value in the AO may lead you to want to take a trade in the opposite direction of the primary trend. When testing strategies, we like to go through indicators and find where things fail. Finding the blind spots of an indicator can be just as helpful as displaying these beautiful setups that always work out. Although we prime xbt are attempting to locate a continuation in the trend after a minor breather in the direction of the primary trend, the setup is just too simple. It doesn’t account for trend lines or the larger formation in play. Without going into too much detail, this sounds like a basic 3 candlestick reversal pattern that continues in the direction of the primary trend.

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. 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. Ross Cameron’s experience with trading is not typical, nor is the experience of traders featured in testimonials.

How to use Awesome Oscillator Indicator?

All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. This strategy attempts to identify market reversals by examining the difference between two peaks on the same side of the zero line.

The awesome oscillator indicator will fluctuate between positive and negative territory. A positive reading means the fast period is greater than the slow and conversely, a negative is when the fast is less than the slow. Depending on your charting platform, the awesome oscillator indicator can appear in many different formats.

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

Now, let’s look at a real example and make a trade using divergence. You may know that many oscillators are used when defining convergence/divergence between the price chart and the oscillator. A bearish pattern is represented by the first bullish bar; the second bar is also bullish but smaller than the first one. The bullish pattern has one bearish bar; the next bar is also bearish but smaller; the third bar should be bullish.

Day Trading Gaps and Windows

In fact, the AO was a kind of addition to theWilliams Alligator – another “invention” of Bill Williams, and the MACD mechanism was adopted as the basis for its creation, albeit with significant changes. When the converse situation occurs and the histogram’s value sits below the zero line, the short-term average is less than the long-term average and a bearish market is indicated. The value of an investment in stocks and shares can fall as well as rise, so you may get back less than you invested. It can be used for identifying trend reversals and corrections. If you’re trading in MetaTrader, here are several steps to implement the oscillator on the chart.

Well by definition, the awesome oscillator is just that, an oscillator. Unlike the slow stochastics, which is range bound from +100 to -100, the awesome oscillator is boundless. Some products and services listed on this website are not available to ##CURRENT_COUNTRY## clients.

Do Indicators Work in Forex?

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. If you want to learn how to change the AO settings yourself, simply the commitments of traders bible click on the TradingView gear icon, AO Style and choose columns instead of the histogram. In this article, we will detail the calculations used to compile the Awesome Oscillator to then move on to applying the indicator in practice.

Indicators, Strategies and Libraries

Libertex MetaTrader 5 trading platform The latest version of MetaTrader. Libertex MetaTrader 4 trading platform The #1 professional trading platform. First, if you shorted the opening spike, similar to our Papa John’s example, this would have caused you serious pain.

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 red 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. Trading strategies usually require multiple technical analysis indicators to increase forecast accuracy. Lagging technical indicators show past trends, while leading indicators predict upcoming moves.