Deep dive into Awesome Oscillators

20 août

Hello, Skyrexians!

We continue our series of educational content. Today it's time to consider the Awesome Oscillator, the indicator introduced by Bill Williams in his book "Trading Chaos". It can be very useful in your crypto trading. A lot of crypto trading strategies use this indicator. You can combine it with other indicators to create your crypto trading algorithm, trading bot or manual cryptocurrency trading strategy. Most of top crypto traders and top crypto trading platforms use it in their automated crypto trading. If you will be aware you to trade using Awesome Oscillator will be able to enhance your automated trading bot, manual trading strategy or setup grid trading bot more effectively. We think there is enough arguments to learn how to use this indicator. Let's start our deep dive!

What is Awesome Oscillator?

The Awesome Oscillator (AO) is a momentum indicator used in technical analysis to measure the strength and direction of a market trend. It was created by Bill Williams and is designed to help traders identify potential reversals or trend continuations.

Key Features of the Awesome Oscillator:

• Momentum Measurement: The AO measures the difference between a short-term moving average and a long-term moving average, using midpoints of each candlestick rather than closing prices. This provides insights into the market's momentum.
  
• Histogram Representation: The indicator is typically displayed as a histogram, with bars oscillating above and below a zero line. Green bars represent increasing momentum (bullish), while red bars indicate decreasing momentum (bearish).
  

The Awesome Oscillator is calculated using simple moving average(SMA) as follows:

AO = SMA(5-period) − SMA(34-period)

Now let's consider the signals which can be produced by Awesome Oscillator with the examples.

20 août

Note

Buy signal "Plate"

The "Plate" buy signal is the only one has to be formed above the zero line. It's very simple. We shall wait when the Awesome Oscillator's bars sequence introduced on the chart will be formed.



As we can see it consists of 3 bars. Bars 1 and 3 shall be higher than bar 2. If we have such sequence the signal activation located above the high of the price bar, which corresponds to AO bar 3. If price breaks this high signals is active. Here we also have the very important thing. When this signal activating price shall be above the Alligator's red line and the last up fractal shall be broken through. On the chart below you can see an example of successful "plate" signal.

21 août

Note

Buy signal "Zero line cross"

This type of long signal needs only two candles on Awesome Oscillator histogram. The first one shall be below zero line and the next one shall be above it. This signal means the high probability of transition from the bearish trend to the bullish one. On the chart below you can see this bars sequence.



Let's move to the example on the price chart below. We can see that price broke the fractal level. From this moment of time we can wait for the AO buy signal "Zero line cross". We can see the signal has been formed after that and we have to wait for the breakout of signal candle's high to enter long trade.

21 août

Note

Buy signal "Double Bottom"

The last buy signal is the double bottom on the Awesome Oscillator. You shall wait for the first bottom formed below zero-line. After that AO columns shall not cross zero line and for the second bottom as you can see on the chart below. The confirmation column is the first green column after the second bottom formed.



On the chart below you can see the example of this signal execution.

26 août

Note

Conclusion

The Awesome Oscillator is a momentum-based indicator designed to help traders identify changes in market momentum and potential trend reversals. By analyzing the difference between short-term and long-term momentum, the AO provides valuable insights into the strength and direction of price movements, allowing traders to make more informed trading decisions.