Awesome oscillator (AO) is an indicator which is used to measure market momentum. It reflects specific alteration in market momentum which help to determine the strength of trends, included forming point and spread. This is most important indicator from Bill Williams. It is integrated into your terminal trading. The goal is to determine current market momentum that is the booster which is second measurement that helps you to build a successful trading strategy.
You will see the histogram with the line separated by zero line (nought line) and change their color when you open the window of awesome oscillator. According to formula, a green color means that the bar value is higher than the value of previous bar and a red color means that the bar value is lower. You must remember that you have to sell when the color of bar is green, whereas when the color of bar is red, you must sell.
There are two signals in awesome oscillator, those are signal to buy and signal to sell. Signal to buy covers the followings:
In order to open long position, you need 3 bars that are higher than nought line. You can name it as A, B, and C. A should be higher than B, the color should be green. B should be colored red. C is signal bar and it should be colored green. Specifically, this signal bar reversed the direction from downward to upward. The second column should be lower than the first one and it is colored red. The third column should be higher than the second and it is colored green.
- Nought line crossing
For buying currency, you should wait the appearance of green bar which the position is higher than zero line (nought line) which is crossed by red bar under this line. If you search for entrance for short position, green bar should be changed by red bar.
- Two pikes
This is signal to buy which is generated when the values of bar chat are below the zero line (nought line). You can look at the histogram. For example, you see that bar have made two pikes among the space and all is above zero. If the second pike (left to the right) is nearer than first pike with zero line, it is the signal to buy. The bar chart is under the zero line among the two pikes, the signal to buy doesn’t function. Each new pike of the bar chart should be higher than the previous pike. An additional signal to buy will be generated when there is additional higher pike is formed and the bar chart has not crossed the zero line.
Signal to Sell
Signal to sell is like signal to buy. Saucer signal is capsize and under the zero. Crossing in zero line go down—first column above the zero line and the second under it. Two climax signals are higher than zero line and capsize.
You must remember that you should buy when the bar colored green and sell when the bar colored red. And also look at histogram because pending order open the adverse signal can appear every time and the situation will be unclear. In this situation, cancel the order out from the market with the benefit which is made with fractal. Awesome oscillator will help you to predict the market situation, and it will be helpful if it is used in successful trader.
AO is a 34-period simple moving average, 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
AO = SMA (MEDIAN PRICE, 5) – SMA (MEDIAN PRICE, 34)
MEDIAN PRICE — median price;
HIGH — the highest price of the bar;
LOW — the lowest price of the bar;
SMA — Simple Moving Average.
Also read: How to use moving averages like a pro