A Forex Trader’s Guide to Awesome Oscillator
When you understand market momentum, you can better identify market reversals. The Awesome Oscillator compares current and general market momentum to determine ideal entry or exit price levels before a market reverses. Our article discusses the Awesome Oscillator in-depth:
What is the Awesome Oscillator?
The Awesome Oscillator, invented by American trader Bill Williams, is a technical momentum indicator that compares different market momentums with each other during a specific period of time. It indicates the market price changes and subsequently identifies the existing trend’s strength. The indicator can be used on multiple time frames and can be used to forecast future market momentum. It uses a center line called a zero line, with prices plotted on either side during the comparisons.
- When the Awesome Oscillator indicator is above the zero line, it indicates a bullish market that can reverse, providing a signal to exit trades or enter short trades.
- When the Awesome Oscillator is below the zero line, it indicates a bearish market momentum which can reverse into bullish market momentum. A long or buy signal is indicated.
How to read the Awesome Oscillator
The bullish market momentum is indicated by green bars on the Awesome Oscillator price chart, while the bearish market momentum is indicated by red bars on the Awesome Oscillator price chart. The green and red bars are plotted above and below the zero line on the basis of calculating a fast-moving average and a slow-moving average as their difference. A positive Awesome Oscillator reading indicates that the fast-moving average is more than the slow-moving average and a negative reading implies the opposite.
- A reading above the zero line indicates an existing uptrend.
- A reading below the zero line indicates an existing downtrend.
When the rising histogram is made from continuous green bars, it indicates that the current value of the Awesome Oscillator is more than the previous bar (existing uptrend). Similarly, a falling histogram with a continuous red bar indicates that the current value of the Awesome Oscillator is lower than the previous bar (existing downtrend).
How to calculate Awesome Oscillator
To calculate the Awesome Oscillator, you subtract a long-term simple moving average (34-period) from a short-term simple moving average (5-period). Any timeframe, from minutes hourly to the daily chart, can be used to calculate the indicator in an existing trending market. This means that the smoothed line of the last 34 candlesticks’ mid-point is subtracted from the smoothed line of the previous five candlestick’s midpoints to get to the indicator’s value. Then, the Awesome Oscillator line is plotted in the form of a histogram swinging above and below the zero line that divides the graph into two equal parts – positive and negative. Hence, Awesome Oscillator = Simple moving average (median price, five periods) – Simple moving average (median price, 34 periods) Where median price = (high price level of the currency pair + low price level of the currency pair) / 2
Accelerator Oscillator vs Awesome Oscillator
Just like the Awesome Oscillator, the Accelerator Oscillator is also a Bill Williams’ technical momentum indicator. It is calculated as the difference between the Awesome Oscillator indicator and the 5-period simple moving average. The indicator is used to detect any early momentum changes in the market. It forecasts price changes by measuring the acceleration and deceleration in the market’s momentum, providing an ideal price level to exit or enter a trade. It looks exactly like the Awesome Oscillator, formed with bullish green bars and red bearish bars. However, there is a major difference between the two. While the Awesome Oscillator provides traders with signals about when to enter or exit a trade, the Accelerator Oscillator does not provide any specific trading signal. Instead, it only shows the bullishness or bearishness of the market trend. In fact, rather than giving trading signals, it helps by signalling them not to buy or sell trades that are not favourable.
- The indicator signals not to enter a buy or long trade if the last bar on the currency pair’s price chart is red.
- The indicator signals not to enter a short or sell trade if the last bar on the currency pair’s price chart is green.
How to Use The Awesome Oscillator
Traders use the Awesome Oscillator in the forex market to generate buying and selling trading signals in trending and reversing markets. It is used as a short-term strategy where traders frequently enter and exit trading positions. The zero line crossover is used to interpret market signals. A bullish crossover occurs when the Awesome Oscillator crosses the zero line from above, and a bearish crossover occurs when it crosses the zero line from below. Both crossovers suggest that markets can possibly reverse now, signalling selling opportunities in bullish crossovers and buying opportunities in bearish crossovers.
- Traders can open a short position when the currency pair prices move below the zero line.
- Traders can open a long position when the currency pair prices move above the zero line.
Another way to use the Awesome Oscillator is through saucers. A bullish saucer appears when there is a rapid momentum change in the currency pair’s price charge. In this situation, the Awesome Oscillator is moving above the zero line; there are two red bars, decreasing in size, followed by a single green bar. It signals to open a buy position at the third bar. On the other hand, a bearish saucer appears when the Awesome Oscillator is trading below the zero line with two green bars, where the second green bar is smaller than the first and followed by a single red bar. It signals to open short positions or exit existing positions at the third bar.
Awesome Oscillator Trading Strategies
Awesome Oscillator Twin Peaks Strategy
The twin peaks strategy is used in bullish and bearish markets to identify ideal selling and buying opportunities. A bullish twin peak occurs when two consecutive peaks in the market’s momentum are below the zero line. When the second green bar makes a longer peak than the first green bar, it results in a bullish twin peak which signals that prices will break above the zero line and long orders can be opened. A bearish twin peak occurs when two consecutive lows in the market’s momentum are above the zero line. When the second red bar makes a lower low than the first red bar, it results in a bearish twin peak which signals that prices will break below the zero line and short orders can be opened.
Awesome Oscillator Scalping Strategy
The scalping strategy with Awesome Oscillator helps take advantage of small and quick trading positions in a bullish or bearish market. Traders can profit from the volatile markets as well. When trading with the Awesome Oscillator, select the smallest timeframe available to reflect the scalping strategy and open positions that only last for a few seconds or minutes. When traders combine the Awesome Oscillator with an indicator like the Bollinger Bands to indicate the scalping strategy, they are able to enter and exit positions quickly in a trending market. The Bollinger Bands is a technical analysis tool that helps determine if the currency pair prices are relatively trading at a high or low.
- Traders receive a buy signal when there are multiple green bars on a small timeframe followed by a single red bar.
- Traders receive a sell signal when there are multiple red bars on a small timeframe followed by a single green bar.
Awesome Oscillator MACD Strategy
Moving Average Convergence Divergence (MACD) is a trend-following indicator that indicates the existing market momentum by showing the relationship between the currency pair’s fast and slow-moving average. Combining the Awesome Oscillator with the MACD indicator helps confirm the market momentum and whether the trending markets will reverse or not. The two indicators together as a strategy compare the current market period with historical market periods to understand the trend direction. The MACD indicator helps identify ideal entry and exit price levels, whereas the Awesome Oscillator confirms these price levels once determined.
- If the MACD indicator identifies that the current trend is too strong, and the Awesome Oscillator confirms the same, it signals traders to trade with the market.
- If the MACD indicator identifies that the current trend is weak, and the Awesome Oscillator confirms the same, it signals traders to trade against the market.
Exactly like the Awesome Oscillator, when the MACD line moves above (or below) the zero line, it is a bullish (or bearish) signal indicating a market continuation in a strong market and a reversal in a weak market.
Awesome Oscillator Price and Momentum Divergence Strategy
This strategy is used for trading the divergence between the market momentum and the price of the currency pairs. If the currency pair prices make continuous new highs in the market, but the Awesome Oscillator does not and falls instead, it indicates a bearish divergence. This refers to a slowed momentum in the market with decreasing prices, signalling to exit long positions and enter short positions. On the other hand, if the currency pair prices make continuous new lows in the market, but the Awesome Oscillator does not and rises instead, it indicates a bullish divergence; this refers to a slowed momentum in the market with increasing prices, signalling to exit short positions and enter long positions.
Awesome Oscillator Keltner Channels Strategy
Keltner channels is a volatility-based technical indicator that determines a trend’s direction. The bands are placed on the currency pair price’s either side and signal market continuation. When the Awesome Oscillator crosses the zero line from below, breaking even lower than the Keltner channel indicator, it signals a strong bearish momentum in the market. The signal provides them with strong selling opportunities. On the other hand, when the Awesome Oscillator crosses the zero line from above, breaking even above the Keltner channel indicator, it signals a strong bullish momentum in the market. The signal provides them with solid buying opportunities.
Awesome Oscillator Long Setup Strategy
You can trade swing highs of a currency pair’s price with the Awesome Oscillator to profit from the bullish market momentum. When the Awesome Oscillator moves above the zero line and makes two consecutive swing highs, draw a trendline that connects these two swing highs to the zero line. Then, buy at the break of the trendline. Placing a long order at the trendline will help you increase profit probability. Ensure that the downward sloping line has two swing price levels on the Awesome Oscillator, with the second swing being lower, which helps in creating a downward trendline for you to open long positions.
Awesome Oscillator Bearish Setup Strategy
You can trade swing lows of a currency pair’s price with the Awesome Oscillator to profit in the falling markets. When the Awesome Oscillator moves below the zero line and makes two consecutive lows, draw a trendline that connects these swing lows to the zero line. Then, sell at the break of the trendline. Placing a short order or an exit order at the break of the trendline will help you profit from the falling markets. Ensure that the upward-sloping line has two swing price levels on the Awesome Oscillator. The second upward-sloping line is always higher than the first, which helps create a downward trendline for you to open long positions.
Trade Trend Reversals With the Awesome Oscillator
The Awesome Oscillator identifies the strengths and weaknesses of a market trend. It helps in analysing if the markets are going to continue or reverse. Based on this information, traders place long or short orders. Start trading with Blueberry Markets, a forex trading platform in Australia, to use several such indicators together to receive confirmed market signals. Sign up for a live trading account or try a risk-free demo account.
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