A trader’s guide to using the awesome oscillator
The awesome oscillator is a technical indicator that was first developed by a trader and analyst named Bill Williams. Here, we explain what the indicator is and some awesome oscillator trading strategies.
What is the awesome oscillator?
The awesome oscillator is a market momentum indicator which compares recent market movements to historic market movements. It uses a zero line in the centre, either side of which price movements are plotted according to a comparison of two different moving averages.
Traders can use the information supplied by the awesome oscillator to forecast market momentum and whether the prevailing trend will continue or reverse. If the awesome oscillator is above the zero line, the market is currently bullish but momentum could shift towards being bearish. If the awesome oscillator is below the zero line, then the market is currently bearish but momentum could shift towards being bullish.
The below price graph has an example of the awesome oscillator indicator and how it maps market momentum above and below the zero line. Green bars indicate bullish momentum, while red bars indicate bearish momentum.
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.
What is the awesome oscillator formula?
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. Any time period can be used, from minutes, hours or days – although many traders will use a daily SMA as part of their awesome oscillator trading strategy in order to assess the prevailing trend of a market.
Many trading platforms – including the IG trading platform – will plot the awesome oscillator onto a price graph for you at the click of a button. However, a written form of the awesome oscillator formula can be seen below:
Awesome oscillator trading strategies
There are several different awesome oscillator trading strategies to choose from, depending on the current market momentum. Each different awesome oscillator strategy seeks to confirm or disprove trends and determine potential reversal points. 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.
Awesome oscillator saucer
The awesome oscillator saucer is a trading signal that many analysts use to identify potential rapid changes in momentum. The saucer strategy involves looking for changes in three consecutive bars that are on the same side of the zero line.
Awesome oscillator saucers can be either bullish or bearish. A bullish saucer can be identified when the awesome oscillator is above the zero line and there are two consecutive red bars – with the second bar being lower than the first – which are followed by a green bar.
On the other hand, a bearish saucer can be identified by two consecutive green bars below the zero line – with the second bar being lower than the first – which are immediately followed by a red bar.
Many traders will seek to enter a buy position either during the third bar or in the bar which immediately proceeds the third bar – providing that it is also green. A lot of traders will use a stop on their position to manage their risk.
Awesome oscillator twin peaks
The awesome oscillator twin peaks strategy can be used on both bullish and bearish markets. A bullish twin peak is when there are two peaks in momentum below the zero line. Some traders believe that a green bar after the second peak – which must be higher than the first peak – signifies that there will be a break above the zero line.
For the pattern to be valid, the trough between the two peaks must not break above the zero line. 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 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.
The trough between both peaks must not break below the zero line, otherwise the signal is invalid. The red bar that proceeds the second peak will serve as a sell signal, at which a trader using this strategy will choose to open a short position. The price chart below gives an example of a bearish twin peak awesome oscillator pattern.
Bullish or bearish zero-line crossover
A bullish zero-line crossover is when the awesome oscillator goes from below to above the zero line, while a bearish crossover is when it goes from above to below the zero line. These moves can signify a reversal against the previous market trend.
Traders will usually open a short position when the awesome oscillator crosses from above to below the zero line. Alternatively, they will open a long position when the awesome oscillator crosses from below to above the zero line.
For a bearish zero-line crossover, traders generally look for a consecutive streak of three or more red bars before opening a short position; for a bullish zero-line crossover, traders usually look for a consecutive streak of three or more green bars before opening a long position.
Who is Bill Williams?
Bill Williams is a famous technical trader and analyst who created the awesome oscillator. As a result, some people will refer to the awesome oscillator as the Bill Williams awesome oscillator. Some of his other indicators include the Bill Williams Alligator, Fractals, the Gator Oscillator and the Market Facilitation Index.
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.
Awesome oscillator summed up
- The awesome oscillator is a market momentum indicator
- The awesome oscillator can give traders buy or sell signals based on what the indicator’s bars are doing, and depending on the pattern that they are showing
- Three popular patterns or strategies used with the awesome oscillator are the saucer, the twin peaks and the zero-line crossover – all of which can be either bullish or bearish
- The creator of the awesome oscillator, Bill Williams, has also developed a number of other indicators which traders might find useful, including the Bill Williams Alligator and Fractals
Publication date :
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
Please see important Research Disclaimer.