How to Use and Read the Awesome Oscillator for FXOPEN:EURUSD by FXOpen

what is the awesome oscillator

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. In a related article on Stocktwits Blog [4], see how day trader Dave Kelly describes trading low float stocks and the level of volatility with these securities. Well, guess what happened – Papa John’s peaked at $55.83 before consolidating.

what is the awesome oscillator

Like any trading signal, divergences don’t guarantee any future price action and are taken more as scenarios that have a likelihood of causing the market to behave a certain way. A bearish twin peak takes place when two green peaks are observed above the zero-line, and similar to its bullish counterpart, is followed by a red bar under the zero-line – the sell signal. 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. The Awesome Oscillator’s primary use is to measure market momentum, but investors can also use it to affirm trends and even anticipate potential reversals.

Many of Bill Williams’s oscillators and indicators can be used on a range of markets including stocks, forex, commodities and indices. As with the awesome oscillator, Williams’s other indicators are used to confirm or disprove trends and determine potential reversal points. A bearish twin peak is when there are two peaks made up of green bars above the zero line. The second peak will have to be lower than the first peak for the signal to be correct, and a red bar must immediately follow the second peak.

You, however, reserve the right to use whatever periods work for you, hence the x in the above explanation. One point to clarify, while we listed x in the equation, the common values used are 5 periods for the fast and 34 periods for the slow. Unlike the slow stochastics, which is range bound from +100 to -100, the awesome oscillator is boundless. Sets the number of decimal places to be left on the indicator’s value before rounding up.

Awesome Oscillator and the Futures Markets

These securities will move erratically, with volume and in a very short period of time. First, a major expansion of the awesome oscillator indicator in one direction can signal a really strong trend. Therefore, the verdict is in and we give the twin peaks strategy a solid C+. In the above example, there were 7 signals where the awesome oscillator indicator crossed the 0 line. 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. This isn’t necessarily the Awesome Oscillator’s fault, as low float securities move erratically over short periods.

In doing so, the awesome oscillator can help a trader to determine when or if they should open a buy or a sell position based on the signals provided by the awesome oscillator. The awesome oscillator formula works from a 34-period simple moving average (SMA) of median prices, which is subtracted from a five-period SMA of median prices. Consequently, these price movements are displayed on the histogram with two simple moving averages presented and compared. When the 5-period SMA is greater than the 34-period SMA, the histogram gets above zero, which is considered a bullish signal.

Awesome oscillator is a convenient tool for defining market trends – it can be used by both beginners and seasoned traders. Thanks to its comprehensive visuals and customization, AO can be applied to any timeframe, but proves to be particularly useful for short- and mid-term trading. Another way to use Awesome Oscillator in your trading strategy is to spot divergences. When the price draws a new extreme, and the Oscillator shows the opposite dynamics, this indicates a fading trend and a high probability of movement in the opposite direction. You can implement the strategy using only one Awesome Oscillator, but it won’t be enough to confirm your predictions. This is a trading tool used for analyzing price trends and upcoming changes in the market sentiment regardless of movements – upward or downward.

Bearish Twin Peaks

Just like when a train accelerates from standstill to its top speed, the train will continue to move even after it stops accelerating before decelerating back to a halt. In the trading terminal, it looks like a histogram under the price chart. Its values change relative to the zero line, the color of its columns also changes depending on the price dynamics (usually green and red). Williams’ other indicators were also created to confirm or invalidate trends and define reversal points ahead of time, but none of them are as widely applicable as the Awesome Oscillator. Williams was also an author of books on psychology, technical analysis, chaos theory, and trading in different markets. 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.

  1. Many of you may trade larger caps rather than low float stocks, because you’re able to scale in with larger size with low volatility plays.
  2. The value of shares, ETFs and ETCs bought through an IG share trading account can fall as well as rise, which could mean getting back less than you originally put in.
  3. However, this oscillator alone is not enough to get the full insight into the market, so don’t get its signals wrong.
  4. IG International Limited receives services from other members of the IG Group including IG Markets Limited.

In fact, they apply to all kinds of markets, including stocks, commodities, forex, indices, and even cryptocurrencies. A Bullish Twin Peaks setup occurs when there are two peaks below the Zero Line. The second peak is higher than the first peak and followed by a green bar. Also very importantly, the trough between the two peaks, must remain below the Zero Line the entire time. When AO crosses above the Zero Line, short term momentum is now rising faster than the long term momentum.

A trader’s guide to using the awesome oscillator

To implement the strategy, you need to have at least two green columns showing a transition to an uptrend. If, for example, the price makes new highs, and the AO does not show new highs, this is a bearish divergence, the price may go down. Accordingly, a bullish divergence occurs when the price keeps falling, and the oscillator shows an increase, in which case a trend change to an uptrend is expected.

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. 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. A divergence occurs when the Awesome Oscillator reports momentum that doesn’t conform with recent price action and can often indicate a reversal or corrective move soon. This is because markets tend to rise more often than they fall, meaning bull markets can last longer than bear markets, giving growing markets more time to build momentum.

Traders often try and enter long positions during the third bar or in the red bar immediately preceding it. For example, a buy signal happens when the histogram goes from the area of negative values to the positive area (crosses the zero level from the bottom up). In this case, a stop-loss should be placed above the high of the price, which corresponds to the first column in the positive zone. On the other hand, when the awesome oscillator goes from the positive zone to the negative zone, you should consider opening a short position. Therefore, the strategy, if you want to call it that, calls for a long position when the awesome oscillator goes from negative to positive territory. Conversely, when the awesome oscillator indicator goes from positive to negative territory, a trader should enter a short position.

As with all technical indicators, awesome oscillator signals are no guarantee that a market will behave in a certain way. 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.

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