INDICATORS. Oscillators (2) Awesome Oscilator

28 Oct

The Awesome Oscillator developed by Bill Williams is a histogram designed to show the market momentum of a recent number of periods compared to momentum of a larger number of prior periods (default short period is 5 periods, long period default is 34 periods). The intent of the indicator is to show what is happening to the momentum of a currency in recent trading within the context of a wider time frame, helping to generate trading decisions.

The default Awesome Oscillator (AO) is a 34-period Simple Moving Average (SMA) of median prices subtracted from a 5-period SMA of median prices.

AO=SMA (Median Price, 5 periods) – SMA (Median Price, 34 periods)

Where: Median Price = (High + low)/2

Buy signals

*Saucer – Occurs where the histogram bar chart is above (not below) the zero line and the chart has reversed direction from downward to upward (concave up). A saucer occurs where if, in any three bars the second bar is lower than the first and coloured red and the third bar is higher than the second and coloured green.

*Two pikes – Occurs when a pike below the zero line pointing downwards (lowest minimum) is followed by another downward pointing pike which reaches a higher low (minimum is closer to the zero line). Traders may wish to pay particular attention where two pikes occur in unison with a divergence in price.

*Zero line crossing – Occurs when the histogram crosses from below the zero line to above the zero line. A consecutive run of four or more green bars is advisable.

Sell signals

*Zero line crossing – Occurs when the histogram cross from above the zero line to below the zero line. A consecutive run of four or more red bars is advisable.

*Saucer – Occurs where the histogram bar chart is below (not above) the zero line and the chart has reversed direction from upward to downward (concave down). In any three bars the second bar must be higher than the first and coloured green and the third bar must be lower then the second and coloured red.

*Two pikes – Occurs when a pike above the zero line pointing upwards (highest maximum) is followed by another upward pointing pike which reaches a lower high (maximum is closer to the zero line). Again traders may wish to pay particular attention to any divergences of the two pikes with price.

N.B. By default green is used for rising bars and red for falling bars (as compared to the previous bar).

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