How to use ‘Awesome Oscillator’ in trading strategy

Contents AO Divergence Indicator Predict future price momentum with The Awesome Oscillator Test your knowledge before trading Bill Williams Awesome Oscillator Strategy Rules Chaikin Money Flow Indicator (CMF) Awesome Oscillator and the zero-line crossovers Both peaks must occur in momentum above the zero line with the second peak lower – or closer to the zero line – than the first. You should also look for the next histogram bar after the second peak to be red, ensuring the second peak has formed and is not continuing to grow. When the five-day SMA is greater than the 34-period SMA, the value generated in the histogram is above the zero line and a bullish market is indicated. The Awesome Oscillator is rarely used alone in Forex and CFD trading, but it is very effective together with other oscillators and indicators. Traders use momentum indicators to have a better understanding of the speed or rate at which the price of a security… A step by step guide to help beginner and profitable traders have a full overview of all the important skills (and what to learn next 😉) to reach profitable trading ASAP. This indicator works under the premise that as momentum begins to slow, fewer sellers or fewer buyers are willing to trade at the current price. This isn’t necessarily the Awesome Oscillator’s fault, as low float securities move erratically over short periods. In fact, most indicators have a hard time with small-cap investments, but this makes it near impossible to use the Awesome Oscillator in crypto markets without pairing it with more reliable tools. A Bullish Saucer setup occurs when the AO is above the Zero Line. It entails two consecutive red bars being followed by a green Bar. AO Divergence Indicator While there are bound to be traders who swear against it, with how diverse its range of functions is, it’s safe to say the trading world as a whole would be far worse off without it. There are also ‘hidden’ divergences that can result in both bullish and bearish markets. These hidden divergences occur when the momentum and price action broadly correlate, but not at every stage. For example, a hidden bullish divergence occurs when the price makes a higher low, but the indicator’s low continues falling. The Awesome Oscillator is primarily used by technical analysts for its integration of more standard momentum oscillators while adjusting their calculations to iron out weaknesses. If you trade the saucer strategy, you have to realize you are not buying the weakness, so you may get a high tick or two when day trading. That’s right folks, not an EMA or displaced moving average, but yes, a simple moving average. It shows us quite clearly what’s happening to the market driving force at the present moment. When the price is higher than before, the histogram produces a green bar, and art xdirect professional active direct box 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. Though no indicator is perfect, having a solid grasp of using the Awesome Oscillator can be an incredible advantage against a market that isn’t always sure where it’s headed. The second peak has to be greater than the first, and should be followed by a green bullish bar. The legendary chartist, Bill Williams created the Awesome Oscillator indicator. He showed it as the best momentum indicator that is as simple as it is elegant. Predict future price momentum with The Awesome Oscillator The signal is generated, when you have a pike pointing down which is below the nought line and is followed by another down-pointing pike which is somewhat higher , than the previous down-looking pike. Keep in mind, that all Awesome Oscillator columns should be over the nought line for the saucer signal to be used. Simultaneous generation of signals to buy and to sell is impossible. Keep in mind, that all Awesome Oscillator columns should be over the zero line for the saucer signal to be used. This is simply when the AO value crosses above or below the Zero Line. The cross of the zero level up indicated the upcoming trend and the cross of the zero level down, the possible reversal to the downtrend. We don’t want to add any buffer below the swing low level because any slight break below the swing low will invalidate the AO Twin peaks pattern. The Awesome oscillator histogram should normally align with the price action. In this regard whenever the price forms a swing low this should be visible in the AO histogram as well. At this point, your trade is opened, but we still need to determine where to place our protective stop loss and take profit orders, which brings us to the next step of our strategy. As we have already noted, the parameters set by the creator of the AO cannot be changed, the only thing that a trader can alter to his taste is the color of the bars, which are green and red by default. In this example the cross down through the uptrend line happened at the same time there was a cross of the 0 line by the AO indicator. Usually, a major explosion of the Awesome Oscillator in any direction is an extremely strong signal of a trend. All in all, The Awesome Oscillator can be a fairly valuable tool. If AO is used alone, the risks of false signals or their misinterpretation increase. Also, it is a bullish divergence if the price sets new lows and the AO fails to follow suit. A bullish saucer is made up of a red bar, followed by a smaller red bar, then by a green bar. A bearish saucer is made up of a green bar, followed by a smaller green bar, and then followed by a red bar, all of them have to be lower than 0. The range of results in these three studies exemplify the challenge of determining a definitive success rate for day traders. Test your knowledge before trading Also very importantly, the trough between the two peaks, must remain below the Zero Line the entire time. When AO crosses below the Zero Line, the short-term momentum is now falling faster than the long-term momentum. When AO crosses above the Zero Line, the short-term momentum is now rising faster than the long-term momentum. It’s also vital to use stops when trading; there’s no reason to let the market take advantage of your funds without you having a say in it. The positive or negative difference is then plotted over a zero line, but there are numerous factors beyond just price that can affect market momentum. Many of his indicators and other technical analysis tools are usable in a wide range of market scenarios. The most successful day traders are the ones who have developed an edge, and this is where profitable stock trading strategies and simple market analysis come into play. This approach would keep us out of choppy markets and allow us to reap the gains that come before waiting on confirmation from a break of the 0 line. Identifying divergences between technical indicators and price is a crucial aspect of technical trading. The simplest way to interpret the AO is to observe when the bar goes through the zero line. This indicator fluctuates between bullish momentum when trading above the zero line and bearish momentum when trading below the zero line. In cryptocurrency markets, events like a successful protocol upgrade or governance voting systems’ results can positively or negatively affect momentum. The market’s momentum reflects the velocity of price changes, but history has shown that momentum is a much more reliable indicator in rising markets than falling ones. The Awesome Oscillator is plotted as a histogram, primarily using red and green to signify price difference since the previous period. Also, check out our guide on the best momentum trading strategies. Compare that with the MACD indicator which generated far more signals and inevitably far more false signals. However, the Awesome Oscillator tends to give far fewer false signals when compared to other oscillators. The saucer strategy focuses on identifying movement in three consecutive periods on the same side of the zero line. Bill Williams Awesome Oscillator Strategy Rules A bullish saucer is identified when the AO is above the zero line and three histograms go in order as one red bar, a second red bar lower than the first, and a green bar immediately after. This formation resembles a small saucer-shaped dip in the overall histogram. This strategy attempts to identify market reversals by examining the difference between two peaks on the same side of the zero line. The oscillator builds its bars above and below the zero line depending on whether the 5-period MA is above or below the 34-period MA. In the first case, AO will have a positive value, and its bars will line up above the zero line. In the second case, we will see the oscillator bars below the zero level. This approach would keep us out of choppy markets and allow us to reap the gains that come before waiting on confirmation from a break of the 0 line. Let’s look at a chart example to see the cross of the 0 line in action. You, however, reserve the right convert canadian dollars to japanese yen to use whatever periods work for you, hence the x in the above explanation. Well by definition, the awesome oscillator is just that, an oscillator. Unlike the slow stochastics, which is range bound from +100 to -100, the awesome oscillator is boundless. First, a major expansion of the awesome oscillator indicator in one direction can signal a really strong trend. In the above example, there were 7 signals where the awesome oscillator indicator crossed the 0 line. The awesome oscillator indicator will fluctuate between positive and negative territory. A positive reading means the fast period is greater than the slow and conversely, a negative is when the fast is less than the slow. The one twist the awesome oscillator adds to the mix, is that the moving averages are calculated using the mid-point of the candlestick instead of the close. Bearish divergencies might signal that prices are likely to correct and that it might be advisable to exit long positions; similarly, bullish divergences could signal a trader to exit any shorts. Chaikin Money Flow Indicator (CMF) 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. For momentum investors, the ride up is the most profitable part of the movement, with prices moving at high velocity and trade volumes soaring through the roof. Traditional markets usually experience corrections soon after a positive momentum movement, as the markets adjust their expectations, causing the price to retrace lower. • Like all technical indicators, it is important to use the AO in conjunction with other technical analysis tools. Overall, fire up your forex chart and add these forex indicators to see if you can find a trading edge with them. Regardless of your trading approach, ensure a stop loss is used, and risk management is considered before taking any trading signal. Notice how these AO high readings led to minor pullbacks in price. Awesome Oscillator and the zero-line crossovers AO calculations are based on the median price while the MACD is calculated using the closing price. Saucers can be either bullish or bearish, depending on their position with respect to the zero-line. The Saucer method looks for changes in three consecutive bars, all on the same side of the Zero Line. Before we move forward, we must define the indicators you need to trade the Bill Williams Awesome Oscillator strategy and how to use the Awesome oscillator indicator. Use indicators after downloading one of the trading platforms, offered by IFC Markets. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. Our team at Trading Strategy Guides puts a lot of effort into developing strategies that provide you with big wins and with small losses. In essence, this means that from a risk management perspective, you’ll always trade with a superior risk to reward ratio. The scrum methodology and project management has been called the “super indicator” because of the incredible results some traders have had using it. 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. Due to how oscillators function, the Awesome Oscillator reports values above and below a zero line. As mentioned above, it is plotted as a histogram with green and red denoting positive and negative differences.