Bill Williams Awesome Oscillator Strategy Big Profits, Small Losses

If you want to learn how to change swing trading patterns the AO settings yourself, simply click on the TradingView gear icon, AO Style, and choose columns instead of the histogram. If you’re interested in learning more about the MACD indicator, we recommend studying the MACD Trend Following Strategy, which is an out-of-the-box trend-following strategy. In other words, we want to make YOU a consistent and profitable trader.

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In practice, the MACD indicator appears to be more functional and faster. For example, the OsMA indicator was developed on its basis, which measures the difference between MACD and its signal line. In addition, tests reveal that both indicators have their advantages and disadvantages. Note that using this strategy alone should be avoided as the indicator crossing the zero line may give you false signals. A buy order is placed when the histogram bars show a downtrend, reach the zero level but cannot overcome it – growth begins. To implement the strategy, you need to have at least two green columns showing a transition to an uptrend.

A buy signal is indicated when the Awesome Oscillator crosses above the zero line from the negative (below 0) zone to the positive (above 0) zone. Based on the information above, the Awesome Oscillator indicator is a promising addition to any trader’s technical analysis arsenal. The only thing that is yet to be covered is what can be the best trading strategy for this indicator.

A Bearish Saucer

Other analytical techniques and/or other indicators could be used in conjunction with the AO to filter potential trade signals to increase it’s potential profitability as a trade signal generator. No exploration of technical indicators would be complete without investigating the world of momentum indicators. The indicator can Forex trading tip be configured for a variety of timescales, including minutes (very short-term), hours (short-term), days (medium-term), and months (long-term).

Awesome Oscillator vs MACD

• AO is generally used to affirm trends or to anticipate possible reversals.
• On the other hand, when the awesome oscillator goes from the positive zone to the negative zone, you should consider opening a short position.
• The Moving Average Convergence Divergence (MACD) is an alternative momentum indicator that traders use when analysing the market.
• A lot of traders will use a stop on their position to manage their risk.

First, we want to make sure the Awesome Oscillator indicator is below zero. This first rule is part of a three-rule pattern called the Awesome Oscillator Twin Peaks. IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority. Stay on top of upcoming market-moving events with our customisable economic calendar.

Average True Range Indicator

It is calculated as the difference between the 5-period fast simple moving average (SMA) and the 34-period slow moving average. 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. It performs this by clubbing shorter-timeframe and longer-timeframe simple moving averages. Simply put, it compares a recent momentum to momentum over a longer period. Like all other indicators, it’s typically deployed as a part of a larger trading system. The Bill Williams Awesome Oscillator strategy is a momentum strategy that takes advantage of the most immediate trend.

• Both indicators are used to determine market momentum and are based on moving averages.
• The Awesome Oscillator is a popular technical analysis indicator developed by a trader named Bill Williams.
• This oscillating indicator was created in the 1990s by famous trader Bill Williams, and remains an extremely popular tool today.
• Conversely, when selling momentum takes the reigns, the histogram colour changes from green to red and crosses the zero line from positive to negative in a sea of red bars.

Awesome Oscillator emerged and grew famous thanks to a popular expert Bill Williams. The indicator helps find the onset of movement on a price chart, tracks a correction that is coming to an end, and alerts regarding a possible reversal. When the price direction of an oscillator and asset have inconsistency, this is known as a divergence in day trading. For instance, a divergence happens when the oscillator drops while the asset’s price rises. For example, change indicator settings, add filters, and switch to the daily time frame. These are preliminary signals, giving no confirmations to open a trade yet.

This shows bearish momentum is dropping in waves, with some bullishness bouncingback in the middle. But importantly, the main bearish momentum troughs are not making new lows. The first buy signal is created by the second histogram higher low from the left. The blue lines are just highlighting the divergence between the histogram and price. This signal is so called, literally because of its physical appearance in the MACD histogram. When buying momentum is predominant and the histogram goes positive, we get the positive zero line cross.

Subtracting the 5-period SMA from the 34-period SMA plots oscillation above and below zero to reflect whether shorter-term momentum leads or lags longer-term momentum. 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. Instead of directly tracking the difference in market price, the Awesome Oscillator calculates the difference between a long and short-term moving average drawn using each bar’s midpoints.

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It does this by effectively comparing the recent market momentum, with the general momentum over a wider frame of reference. The AO calculates market momentum by analyzing the difference between a 34-period and 5-period simple moving average. The longer 34-period SMA provides the “slow” perspective, while the shorter 5-period SMA offers the “fast” perspective.

The Moving Average Convergence Divergence (MACD) is an alternative momentum indicator that traders use when analysing the market. It is usually calculated by subtracting a 26-period exponential moving average (EMA) from a 12-period EMA. In addition to the MACD line, traders also use the signal line, which is a 9-period EMA of the MACD line, and the histogram, which is the difference between the MACD line and the signal line. The MACD is considered a trend-following indicator, as it provides traders with signals when the market is changing direction.

In fact, they apply to all kinds of markets, including stocks, commodities, forex, indices, and even cryptocurrencies. The rationale behind the specific Awesome Oscillator settings (5 and 34) is rooted in the natural and ancient mathematics of the Fibonacci sequence. The proximity of these numbers to Fibonacci ratios offers traders a balance between short-term and longer-term price actions, capturing the essence of market momentum. When selling momentum dies off and buying momentum picks up speed, the histogram colour changes from red to green and goes from negative to positive, crossing the zero line in a sea of green bars. Zero-line crossover is the simplest strategy for Awesome Oscillator (AO).

The construction you are looking for is a red bar, followed by a smaller red bar, followed by a green bar. A bearish saucer requires all three bars to be on the negative side of the zero line. The combination needs to be a green bar, followed by a smaller green bar (i.e. less negative in value), followed by a red bar. Momentum is one of those aspects of the market that quantitative trading systems is crucial to understanding price movements, yet it is so hard to get a solid grip on.

It is also a contrarian technique as one enters short positions when the oscillator is above zero and buys when below zero. The bearish saucer formation predicts a change in price momentum and the entry of that position. 58% of retail investor accounts lose money when trading CFDs with this provider.

Using technical indicators, investors can use them to predict price movement, at least to some degree of success. Momentum indicators give analysts a better idea of a trend’s strength, which can be a great indicator of future price movements. Positive momentum indicates the potential for a bullish trend, while negative momentum indicates the opposite. Another key difference between the two indicators is the number of moving averages used in their calculation. The MACD uses two moving averages, while the AO uses two moving averages and the midpoint price. This means that the AO provides traders with a more rounded analysis of market trends and momentum, as it takes into account both the high and low prices of a given period.

For shorter-term trend trading off 5-15 minute charts, shorten the SMA windows. For example, try a 10/5 combination, bringing signals closer to real-time price action. For example, combine AO signals with classic reversal indicators like double tops/bottoms, head and shoulders patterns, wedge and triangle breakouts, and more.