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The green bar will often serve as a buy signal, with traders trying to ride the upward momentum to achieve a profit. The price chart below gives an example of a bullish twin peak awesome oscillator pattern. A common awesome oscillator trading strategy is to use the zero-line crossover to interpret signals. As discussed, a bullish crossover occurs when the oscillator crosses above the line, whereas a bearish crossover occurs when the oscillator crosses below the line. The indicator is a significant technical indicator for short-term trading strategies, such as day trading and scalping.

Wrong again, as EGY only consolidates leaving you with a short position that goes nowhere. 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. In this example the cross down through the uptrend line happened at the same time there was a cross of the 0 line by the AO indicator.

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. Similar to other technical indicators, the Awesome Oscillator forex 101 for dummies operates based on a zero line and is positioned at the lower part of the chart in a designated window. However, unlike conventional moving averages that rely on the closing price of candlesticks, this indicator employs the midpoint of the candlestick range. That’s right folks, not an EMA or displaced moving average, but yes, a simple moving average.

  1. 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.
  2. Like all other indicators, it’s typically deployed as a part of a larger trading system.
  3. Shifting gears to where the awesome oscillator is likely to give you more consistent signals – the futures markets.

Because of its nature as an oscillator, The Awesome Oscillator is designed to have values that fluctuate above and below a Zero Line. When AO’s values are above the Zero Line, this indicates that the short term period is trending higher than the long term period. When AO’s values are below the Zero Line, the short term period is trending lower than the Longer term period. 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.

Though no indicator is perfect, having a solid grasp of using the Awesome Oscillator can be an incredible advantage against a market that isn’t always sure where it’s headed. One of the most reputed and widely-used indicators for tracking market momentum is the Awesome Oscillator. The awesome oscillator saucer is a trading signal that many analysts use to identify potential rapid changes in momentum. The awesome oscillator can be well used as a confirmatory tool to trade in the direction of the trend and with momentum.

Awesome Oscillator Conclusion

This strategy searches for quick changes in the momentum and requires a specific pattern in three consecutive bars of the AO histogram, all on the same side of the zero line. The saucer strategy involves looking for changes in three consecutive bars that are on the same side of the zero line. A bullish saucer requires all three bars to be on the positive side of the zero line. The construction you are looking for is a red bar, followed by a smaller red bar, followed by a green bar.

Basically, the Awesome Oscillator measures the immediate momentum of the last 5 bars and compares it to the momentum in the last 34 bars. The Awesome Oscillator indicates if bulls or bears are in control of the market. Now, the only component that needs to be clarified is where to take profit, which brings us to the final step of the Bill Williams Awesome Oscillator trading strategy. We don’t want to add any buffer below the swing low level because any slight break below the swing low will invalidate the AO Twin peaks pattern. At this point, your trade is opened, but we still need to determine where to place our protective stop loss and take profit orders, which brings us to the next step of our strategy. However, we still don’t have confirmation that the buyers have taken the lead, which brings us to the next step of the Bill Williams Awesome Oscillator trading strategy.

Which is Better: Exponential Moving Average vs Simple

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. In cryptocurrency markets, events like a successful protocol upgrade or governance voting systems’ results can positively or negatively affect momentum.

Trade Trend Reversals With the Awesome Oscillator

Use AO with other trading tools, especially the ones measuring asset price and volumes – it will allow you to analyze both historical performance and traders’ current sentiments. 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. 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.

After the break, the stock quickly went lower heading into the 11 am time frame. Without going into too much detail, this sounds like a basic 3 candlestick reversal pattern https://g-markets.net/ that continues in the direction of the primary trend. To trust an indicator blindly without any other confirming analysis is the quickest way to burn through your cash.

If you want to learn how to change the AO settings yourself, simply click on the TradingView gear icon, AO Style, and choose columns instead of the histogram. 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. There is no reason you should ever let the market go against you this much. 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.

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. By comparing recent market momentum with the general momentum over a wider time frame, the Awesome Oscillator provides traders and analysts with a convenient picture of the market’s mindset. 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. If the awesome oscillator crosses above the zero line, this signals bullish momentum, but if it crosses below the zero line, this signals a bearish momentum.

The twin peaks strategy is also quite versatile and applicable to both bullish and bearish markets. Put plainly, momentum cannot predict price movement but instead reflects the overall market’s sentiment. While it cannot protect investors against external market events, it’s always important to know when a momentum indicator signals a fundamental shift in sentiment over a temporary price movement.

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