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Awesome Oscillator AO

 

Awesome Oscillator (AO) Purpose


Awesome Oscillator (AO) is an indicator which is able to show what is happening with driving force of the market is technical indicator of Bill Williams AO. The Awesome Oscillator is created using the difference between the 34-period and 5-period simple moving averages of the bar’s midpoints (H+L)/2. The AO is usually planned as a histogram in which bars higher than the preceding bar will be colored green. Bars lower than the preceding one will be colored red. The Awesome Oscillator/AO was developed by psychologist and trader Bill Williams who explained it in his book “New Trading Dimensions”. This trading classic book covers how to merge trading psychology and Chaos Theory to better understand and forecast market price movements.



Awesome Oscillator (AO) Usage


Awesome Oscillator displays several trustworthy signals for “buy” and “sell” signals and the general trading rule with the AO involves not buying when the histogram is red and not selling when it is green:

Awesome Oscillator interpretation and signals are:

  1. Saucer Signal
    • A buy signal is produced when the oscillator is above the zero line has two sliding red bars are followed by a green bar.
    • A sell signal is produced when the oscillator is below the zero line and two rising green bars are followed by a red bar
  2. Naughty/Zero/ Line Crossing

    Awesome Oscillator generates a trading signal when the zero line is crossed.

    • A buy signal is generated when the histogram is crossed from below
    • A sell signal is generated when the histogram is crossed from above
  3. Two pikes
    • the indicator displays a Buy signal when the figure is formed by two consecutive pikes both of which are below the naught line and the later-formed pike is closer to the zero level than the earlier-formed one.
    • The Sell signal would be given by the reverse formation.



Awesome Oscillator (AO) Calculation


Awesome Oscillator technical tool is a 34-period simple moving average, plotted through the central points of the chart bars (H+L)/2, and deducted from the 5-period simple moving average, graphed across the central points of the chart bars (H+L)/2.


The Awesome Oscillator Indicator shows current market momentum by computing a 34-period simple moving average and subtracting a 5-period simple moving average from it. Each of the moving averages is determined based on the bar midpoints or median prices.

Define:
  • n= the number of the time period bar in question.
  • High(n)= The high price traded during time period n.
  • Low(n)= The low price traded during time period n.
  • SMA(A,B)= Simple Moving Average of data item A over B periods.
  • MP(n)= Median Price at time period n.
  • AO(n)= Awesome Oscillator or momentum at time period n

Calculation:


MEDIAN PRICE = (HIGH+LOW)/2

AO = SMA(MEDIAN PRICE, 5)-SMA(MEDIAN PRICE, 34)

 

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