The Awesome Oscillator is a trend-following momentum indicator that helps traders identify and confirm trends. It can be used on a wide range of financial assets, including Forex, stocks, commodities and indices. It is widely considered a reliable trading tool and is known for its simple and straightforward signal generation.
The AO is based on the difference between the 34-period and 5-period simple moving averages. It displays a histogram that shows green bars when the short-term average exceeds the long-term one, while red bars indicate a decrease in momentum.
It’s a popular momentum indicator because it prints both positive and negative values. Typically, a positive reading means that the fast-moving average is more powerful than the slow-moving average. Likewise, a negative reading suggests that the slow-moving average is stronger than the fast one.
When the AO value is above the zero line, the short-term average is more powerful than the long-term average and the market is bullish. On the other hand, when the AO value is below the zero line, the short-term average falls below the long-term one and the market is bearish.
Some traders like to use the Awesome Oscillator in conjunction with other technical indicators. This is a great strategy to use in choppy markets, where the market can often whipsaw you around. Using a variety of technical indicators allows you to make accurate trading decisions in any type of market.
Another common awesome oscillator strategy involves looking for a’saucer’ on the chart, which is a rapid momentum change in three or more bars at once. The saucer can be a sign that the market is headed in a certain direction and can provide an entry point for traders to enter long or short positions.
A bullish saucer occurs when the Awesome Oscillator is above the zero line and there are two consecutive red bars, with the second being smaller than the first. Traders usually try and enter a long position in the third bar or in the red bar immediately before it.
The Awesome Oscillator can also be used in combination with other momentum indicators to help traders spot reversals in the market. For example, when the Awesome Oscillator crosses above the zero line and a candlestick breaks out of a support resistance area, this can be a strong bullish signal.
This strategy can be applied to any time frame but is most useful on shorter ones. It may be particularly beneficial for scalping, which is a popular strategy that involves initiating and closing trades several times during the day, generally for a few pips profit.
It is important to note that there are no perfect trading strategies and the best way to make money is to follow price action rather than the signals of an indicator. The most effective ways to use the Awesome Oscillator are to combine it with other strategies, such as technical analysis and trend following.
The AO is a trend-following momentum indicator developed by Bill Williams. It is easy to use and comes built-in with most MetaTrader platforms. It’s also a very easy-to-learn indicator and can be used by beginners as well as experienced traders. It’s recommended to practice your skills on a demo account before investing real money in a live trade.