Moreover, the Awesome Indicator incorporates the median price of a set of candlesticks instead of the closing price which other indicators use. Not to forget, the AO is an oscillator which means that it can return a positive or negative value. This is vowed as being a more precise reflection of the “true” market price (than the open or closing prices).

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It can also generate false signals in choppy markets, so it’s wise to use it alongside other indicators like the MACD or RSI for better accuracy. The trough between both peaks must not break below the zero line, otherwise the signal is invalid. The red bar that proceeds the second peak will serve as a sell signal, at which a trader using this strategy will choose to open a short position. The price chart below gives an example of a bearish twin peak awesome oscillator pattern.

FAQ: Does The AO Lag Behind Price?

For traders, paying attention to these zero line crossovers can be helpful for identifying when market momentum is shifting, allowing for better timing in entering or exiting trades. By using the midpoint of candles, instead of just the closing price, it gives a more balanced picture of price movement without getting thrown off by short-term volatility. Overall, the awesome oscillator is a great way to simplify momentum analysis and identify trend shifts and can be used to develop an awesome oscillator trading strategy to capture market trends. After a series of red bars, the momentum eventually slows and the bars turn green. A bearish line peak is when histogram is below the zero line, the previous bar is red while the subsequent and current bar turns green. This suggests the bearish momentum is weakening and could be turning bullish.

Combine the Awesome Oscillator with other indicators

The trough between both peaks, must remain above the Zero Line for the duration of the setup. The most straightforward, basic signal generated by the Awesome Indicator is the Zero Line Cross. While both the Awesome and Stochastic oscillators appear as separate indicators in a window pane outside of the price chart, they have some differences to be aware of. Bill Williams is a famous technical trader and analyst who created the awesome oscillator. As a result, some people will refer to the awesome oscillator as the Bill Williams awesome oscillator.

Side zero is when the histogram bars are close to and hovering around the zero line. This means the spread between the short-term and medium term averages are small and that there may be little momentum in the market. Traders can use the information supplied by the awesome oscillator to forecast market momentum and whether the prevailing trend will continue or reverse. If the awesome oscillator is above the zero line, the market is currently bullish but momentum could shift towards being bearish. If the awesome oscillator is below the zero line, then the market is currently bearish but momentum could shift towards being bullish.

How to Use the Awesome Oscillator Indicator

In this post, we explore the largest companies in the world that currently boast a market capitalization of over $1 trillion. In this article we have explored the concept and uses of the Awesome Oscillator. We then see a succession of another three trade opportunities, each to varying degrees of success, but all potentially profitable. The next opportunity is a sell trade opportunity which comes at the end of the retracement created at the previous buy trade opportunity. Have a look over figure 5 below and try to absorb some of the information shown.

Conversely, when selling momentum takes the reigns, the histogram colour changes from green to red and crosses the zero line from positive to negative in a sea of red bars. Once the histogram is below zero, you are only looking to place sell trades. 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. When the price is higher than before, the histogram produces a green bar, and if the price is lower, the histogram creates a red one. The Awesome Oscillator is a great momentum indicator, being easy to use for newer traders while offering a deeper complexity for more experienced traders to dive into.

This means the 5-period moving average of median prices is the same as the 34-period moving average of median prices. Overall, the awesome oscillator is used to confirm trends and provide early warnings of potential reversals which traders can use as a trading signal or in managing open trades. The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate. 71% of retail client accounts lose money when trading CFDs, with this investment provider.

However, it’s not foolproof and should be used in conjunction with other indicators and a solid trading strategy. Both the Awesome Oscillator and the Moving Average Convergence Divergence (MACD) are momentum indicators, but they are used for different purposes. While the MACD is generally used for identifying new trends, the AO is often used for confirming trends and identifying potential reversals. The Twin Peaks strategy involves looking for two peaks on the Awesome Oscillator histogram.

Please, note that when you see a signal with such patterns, it’s recommended to use other trading tools to confirm your assumptions. Hence, the awesome oscillator displayed the market momentum by means of the histogram bars moving relative to the zero line. Each bar stands for a single period and will be green when the day’s average is higher than on the previous day (and vice versa for the red color). Anyway, Awesome indicator proved its efficiency for predicting upcoming trend changes even on short time frames and can be successfully combined with other trading tools and indicators. This is a trading tool greg shields’s “corporate finance used for analyzing price trends and upcoming changes in the market sentiment regardless of movements – upward or downward. The Awesome Oscillator shows the strength of the trend over a short period relative to the strength of the trend over a long period.

• The upper chart is the Awesome Oscillator, the lower one is the Accelerator Oscillator.
• Many of these apps also have a dedicated page for sharing trading ideas, which can provide additional value to clients.
• A buy signal is prompted when the price of an asset makes lower lows and the Awesome Oscillator forms higher lows.
• The AO oscillates between positive and negative values, with positive values indicating a bullish trend and negative values indicating a bearish trend.
• On the MT4 and MT5 platforms, the technical indicator settings are embedded in the code and cannot be changed.

A Bearish Twin Peak

• However, like all trading strategies, it’s not foolproof and should be used as part of a diversified trading approach.
• It is up to you to decide whether it is worthwhile to additionally filter the signal of the “three main bars” or to be guided only by them.
• 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.
• 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.
• The Accelerator Oscillator shows acceleration or deceleration of the current market movement.

A bearish twin peak takes place when two green peaks are observed above the zero-line, and similar to its bullish counterpart, is followed by a red bar under the zero-line – the sell signal. One of the most reputed and widely-used indicators for tracking market momentum is the Awesome Oscillator. 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.

To determine the Awesome Oscillator value, the 5-period simple moving average is subtracted from the 34-period simple moving average. But rather than using the close prices, SMAs use the middle of the candlesticks (median prices). As mentioned before, this momentum indicator is suitable for computing any timeframe (trading session), including minutes, hours, days, and even months. Though the Awesome Oscillator is most useful in trending markets, it mostly provides weak signals in ranging and consolidating markets. As a leading indicator, the Awesome Oscillator can predict future price momentum, which traders can use to determine potential price movements.

It’s important to note that no indicator or combination of indicators can guarantee profitable trades, and traders should always use appropriate risk management strategies. Last but not least, you can combine the Awesome Oscillator with various indicators. For instance, when following a trend, you can use an oscillator and moving average together to determine when a reversal is about to occur. This trading strategy is sometimes the most preferred one because it explains the current setup of the stock. It is also a contrarian technique as one enters short positions when the oscillator is above zero and buys when below zero.

Whether on the higher time-frames or lower time frames, the methods for using the indicator are the same. When scalping, however, traders are trading brief price shifts on the lower time frames. In the Bitcoin example below we can see a bullish zero line crossover as price breaks out above resistance on the M15 chart. Traders can execute this in the same way they would bullish zero line crossover on the higher time frames. When the 5-period SMA is above the 34-period SMA, it shows that short-term momentum is stronger than long-term momentum, indicating bullish momentum.