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A Traders Guide to the Awesome Oscillator IG International

what is the awesome oscillator

Nevertheless, the most common format of the awesome oscillator is a histogram. 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. The Awesome Oscillator is also known to be difficult to use with assets with a small circulating supply or ‘low float’ stocks. This is largely down to the liquidity of the investment in question, but the Awesome Oscillator trips horribly in markets where even small trades push the market in a particular direction. The most straightforward, basic signal generated by the Awesome Indicator is the Zero Line Cross. Bill Williams is a famous technical trader and analyst who created the awesome oscillator.

As mentioned above, it is plotted as a histogram with green and red denoting positive and negative differences. Markets are constantly moving, and its ability to sustain price movement in one direction is called market momentum. The term is used to define a function of change in price over a specified period against trade volume, meaning higher volumes have more impact on the momentum of price actions.

what is the awesome oscillator

As with the awesome oscillator, Williams’s other indicators are used to confirm or disprove trends and determine potential reversal points. On the other hand, a bearish saucer can be identified by two consecutive green bars below the zero line – with the second bar being lower than the first – which are immediately followed by a red bar. In the above example, AMGN experienced a saucer setup and a long entry was executed. The stock drifted higher; however, we have noticed from glancing at a number of charts, the buy and sell saucer signals generally come after a little pop. 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. The Awesome Oscillator’s signals don’t always reflect the market’s immediate actions, which allows the indicator to detect market divergences – a powerful tool in the hands of any skilled trader or analyst.

Bullish or bearish zero-line crossover

No matter what strategy you lock in on, you will want to make sure you use stops in order to protect your profits. Also, be sure to look at different types of securities to see which one fits you the best. You may find that you like the idea of drilling into where the awesome oscillator indicator fails to uncover trading opportunities. We’re not saying ditch the AO indicator altogether but be prepared to combine the AO with other indicators. Also, lower your expectations about how accurately the oscillator can create price boundaries which a low float will respect. First, if you shorted the opening spike, similar to our Papa John’s example, this would have caused you serious pain.

Next, EGY spikes lower giving the impression the stock was going to fill the gap. Wrong again, as EGY only consolidates leaving you with a short position that goes nowhere. There is no reason you should ever let the market go against you this much. When testing strategies, we like to go through indicators and find where things fail. Finding the blind spots of an indicator can be just as helpful as displaying these beautiful setups that always work out. As you can see in the above example, by opening a position on the break of the trendline prior to the cross above the 0 line, you are able to eat more of the gains.

what is the awesome oscillator

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Bullish Twin Peaks

The reason being, the twin peaks strategy accounts for the current setup of the stock. The twin peaks are also a contrarian strategy as you are entering short positions when the indicator is above 0 and buying when below 0. 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. Momentum is one of those aspects of the market that is crucial to understanding price movements, yet it is so hard to get a solid grip on. 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.

The saucer strategy involves looking for changes in three consecutive bars that are on the same side of the zero line. The Awesome Oscillator is undoubtedly a powerful and versatile tool that should be part of any investor’s toolkit, but it only takes one bad trade to wipe out all of your profits. 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 Awesome Oscillator is primarily used by technical analysts for its integration of more standard momentum oscillators while adjusting their calculations to iron out weaknesses. While the indicator often gives reliable signals, it’s always best to confirm using other indicators to minimize risk of loss. 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.

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 https://www.fx770.net/ bearish but momentum could shift towards being bullish. Now, these are not going to make you rich, but you can capitalize on these short-term trends. Lastly, EGY breaks the morning high all the while displaying a divergence with the awesome oscillator and the price action. Well, guess what happened – Papa John’s peaked at $55.83 before consolidating.

  1. Conversely, when the awesome oscillator indicator goes from positive to negative territory, a trader should enter a short position.
  2. 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.
  3. Due to how oscillators function, the Awesome Oscillator reports values above and below a zero line.

In fact, they apply to all kinds of markets, including stocks, commodities, forex, indices, and even cryptocurrencies. When AO crosses below the Zero Line, short term momentum is now falling faster then the long term momentum. Price Oscillator Definition The price oscillator indicator displays the difference of two moving averages in either points or in percentages.

Bearish Twin Peaks

Because of this, many traders will take steps to manage their risk when trading with the awesome oscillator. These include using stops and limits on open positions in case a trading signal does not translate to a tangible market movement. A bullish saucer can be identified by the Awesome Oscillator positioned above the zero line followed by two consecutive red bars. The second red bar tends to be lower than the first and is followed by a green bar. Traders often try and enter long positions during the third bar or in the red bar immediately preceding it. One of the most reputed and widely-used indicators for tracking market momentum is the Awesome Oscillator.

Awesome Oscillator: 4 Day Trading Strategies

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 value of using the mid-point allows the trader to glean into the activity of the day.

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Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. If you have a basic understanding of math, you can sort out the awesome oscillator equation. The formula compares two moving averages, one short-term and one long-term. Comparing two different time periods is pretty common for a number of technical indicators. The saucer trading signal allows analysts to identify rapid market momentum changes by looking for changes in three consecutive bars on one side of the zero-line.

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