The Awesome Oscillator

Last Updated on April 1, 2023

A market momentum measuring method used with other indicators to confirm bullish and bearish trends and predict possible reversals.

The Formula:
One period = five period SMA – 34 period SMA

Any time periods can be used when calculating the awesome oscillator, but most traders use a daily simple moving average of 34 days and five days.

It is important to note the indicator uses the midpoint value rather than the day’s closing price, which can better track volatility.

Awesome Oscillator Trading Strategies:

Zero-line crossover:
When the AO crosses the zero line from below, it’s considered a bullish trend

Twin peaks:
This trading signal involves two peaks (oscillations) which remain either below or above the zero line. 

This method involves looking at the behavior of three consecutive sticks, all of which must be on the same side of the zero line. In a bullish trend you have two red candlesticks, followed by a green one. The strategies work best when used in conjunction with other technical and fundamental analysis

General Rules

When AO is above zero – only Buy orders should be taken.
When AO is below zero – only Sell orders should be taken.

Buy signal:
The signal to Buy comes when AO histogram forms a series of 3 bars, where:
bar 1 – is red.
bar 2 – is red. (Defaults: bar 2 will always be lower than bar 1. No need to worry about the height comparison).
bar 3 is green. (Defaults: bar 3 will always be higher than bar 2. No need to monitor the height again).

Sell signal:
Sell when AO is below zero and there is a series of 3 candles where:
candle 1 is green.
candle 2 is green.
candle 3 is red.
Place a pending Sell order below the candlestick which corresponds to the first red bar on the AO histogram.

There are 2 other rules for trading with Awesome Oscillator.

  1. AO histogram divergence.
  2. 4 consecutive bars (green or red) + zero line crossover.