The awesome oscillator compares recent market movements to historic data and shows the outcome in a histogram to predict momentum and trend reversals. Learn more about this trading indicator!
- The awesome oscillator compares recent market movements to historic data and displays the outcome in a histogram to predict momentum and spot reversals.
- The formula for the awesome oscillator involves subtracting a 34-period simple moving average from a 5-period simple moving average.
- It is best used on a daily or weekly time frame and provides bullish or bearish readings based on the position of the moving averages.
- Divergences between the price and the awesome oscillator can indicate potential reversals.
- The MACD indicator is similar to the awesome oscillator but includes exponential moving averages and can be used in conjunction with it for confirmation.
- Risk management and combining multiple tools are important when using the awesome oscillator for trading decisions.
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Picture this: you've spent countless hours analyzing charts, studying market trends, and making trading decisions based on intuition. But more often than not, those decisions lead to disappointment and missed opportunities. It's like being trapped in a never-ending cycle of uncertainty and regret.
Enter the Awesome Oscillator, a potentially game-changing tool that will break the chains of doubt and guide you towards better trades. In this article, we'll explore the secrets of this extraordinary indicator, empowering you to conquer your fears and unlock the potential of crypto trading.
What Is the Awesome Oscillator?
The awesome indicator is what is known as a non-limiting oscillator, anchored to the zero line. This means that the indicator has no limit on how far the oscillator can move away from its zero line. In practice, however, it returns to that line eventually.
The indicator compares recent market movements to historic data over a longer time span and displays the outcome of this comparison in a histogram. Traders use this histogram to predict momentum in the market to determine the strength of a trend and spot reversals.
What Is the Awesome Oscillator’s Formula?
As with any indicator, understanding the way an indicator’s formula is calculated helps traders make better decisions and boosts their understanding of the indicator in general.
Reminder: The median price is calculated by adding the highest price and lowest price of a period together and dividing the outcome by two.
In simple terms, the indicator will print a bullish reading (above the zero line) when the five-period SMA is higher than the 34-period SMA. The opposite happens when the five-period SMA is lower than the 34-period SMA, resulting in a histogram reading below the zero line.
How To Read the Awesome Oscillator?
Awesome Oscillator as a Divergence Indicator
The image below is a cheat sheet designed for spotting RSI divergences, but it works the same way for the awesome indicator.
Keep in mind that these divergences are not foolproof. Many traders wait for the awesome oscillator to print a red bar as confirmation of the divergence, before acting on it.
Accelerator Oscillator vs Awesome Oscillator
After developing the awesome oscillator, Bill Williams built another indicator called the accelerator oscillator. This indicator calculates the difference between the awesome indicator and the 5-period simple moving average. It was designed to be more efficient to detect momentum changes in advance.
For example, while a cross above the zero line is viewed as a bullish signal with the awesome indicator, this approach does not work with the accelerator indicator. Instead, traders that use the accelerator oscillator often focus on the color of the histogram; not buying when the histogram is red and not selling when it is green.
How To Use the Awesome Oscillator
In addition to using the zero line and divergences, there are a couple more ways to use this indicator – which we’ll dive into in the next paragraphs.
Awesome Oscillator Scalping Strategy?
Trade Trend Reversals With the Awesome Oscillator
As discussed earlier, the awesome oscillator was developed to predict momentum in the markets. It was designed to determine the strength of a trend and spot reversals.
The strongest reversal signal appears when the awesome oscillator crosses the zero line, where a cross above the line is interpreted as a bullish reversal signal, and a cross below the zero line is interpreted as a bearish reversal signal.
The awesome oscillator crossing above the zero line indicates that the short-term momentum is picking up faster than long-term momentum. This is viewed as a bullish reversal signal.
An awesome oscillator crossing below the zero line indicates that the short-term momentum is falling faster than the long-term momentum. This is viewed as a bearish reversal signal and a short trade can be taken.
The below chart shows a few examples. As you can see, some of these signals quickly reversed and printed opposite signals – therefore, traders should use a combination of trading indicators to confirm a signal before making a move.
Awesome Oscillator Trading Strategies
Earlier in this article, we discussed how analysts have studied the indicator and derived signals based on patterns on the histogram. In their studies, they found two major signals in addition to the zero-line crossover: the Twin Peaks pattern and the Saucer pattern.
The twin peaks strategy is a commonly used approach that utilizes the awesome oscillator to identify potential market reversals. It focuses on observing two peaks on the same side of the zero line. The strategy generates a signal when the second peak, coinciding with the zero line, is closer to zero compared to the first peak.
The chart below is a good example of a bullish twin peaks signal, resulting in an upside:
Bullish Twin Peaks
In short, a bullish twin peaks pattern prints when the awesome oscillator is below zero. In this situation, there are two swing lows, with the second low being higher than the first one. The signal confirms when the histogram flips green after the second low is formed.
Bearish Twin Peaks
A bearish twin peaks pattern prints when the awesome oscillator is above zero. In this situation, there are two swing highs, with the second high being lower than the first one. The signal confirms when the histogram flips red after the second high is formed.
The saucer is another popular awesome oscillator trading strategy. This pattern shows a rapid change in momentum in three or more bars that are either below or above the zero line. Saucers can be used to enter or exit a position, depending on the direction the trader is trading in.
The above is a great example of a bearish saucer playing out.
MACD vs Awesome Oscillator Strategy
On the other hand, the awesome oscillator primarily focuses on the histogram and calculates the difference between a 34-period simple moving average and a 5-period simple moving average. It measures the momentum of the market based on the histogram bars.
Due to the inclusion of moving averages, the MACD is generally considered a faster indicator compared to the awesome oscillator. This means that the MACD can provide early signals of potential market changes. Traders can use the MACD as a preliminary signal and then seek confirmation from the awesome oscillator before making trading decisions.
All in all, the awesome oscillator can be a powerful technical analysis tool to add to your trading toolbox. Nevertheless, as with all indicators, the awesome indicator is not foolproof and does print false signals from time to time.
It is important to exercise risk management and not use the awesome oscillator alone for trading decisions. Combine multiple tools to form your trading strategies and look for confluence between these tools.
Writer’s Disclaimer: This article is based on my limited knowledge and experience. It has been written for educational purposes. It should not be construed as advice in any shape or form. Please do your own research.