Awesome Oscillator (AO)—a powerful tool that can elevate your trading game. Whether you’re a seasoned trader or just starting out, understanding the AO and its implications can make a significant difference in your decision-making process.
The 34 Period Simple Moving Average (Sma)
The foundation of the Awesome Oscillator lies in the interplay between two simple moving averages (SMAs). The first SMA, calculated over 34 periods, serves as the backbone. It represents the midpoint price—the average of the high and low prices.
The 5 Period Sma
The second SMA, computed over 5 periods, provides insight into short-term momentum. By comparing it to the 34-period SMA, we uncover the AO’s oscillations.
Plotting Through Middle Points Of Bars
The AO indicator plots the difference between the 5 period SMA and the 34 period SMA. This difference is displayed as a histogram, oscillating around the zero line.
Identifying Market Driving Force
The AO reveals the driving force behind price movements. Positive values indicate bullish momentum, while negative values signal bearish pressure.
Ao As A Momentum Indicator
Think of the Awesome Oscillator as a momentum magnifier. It amplifies trends, making it a valuable tool for trend-following strategies.
Combining Ao With Other Indicators
Pair the AO with moving averages, RSI, or MACD for a comprehensive trading strategy.
Advantages Of Awesome Oscillator
- Clear trend signals
- Versatility across timeframes
- Enhances other indicators
How to Trade with Awesome Oscillator Indicator
Buy Entry
Saucer Signal
- AO turns back above the zero line from below.
- Look for a reversal in the bar chart direction (from downward to upward).
- The second column should be lower than the first (colored red), and the third column higher than the second (colored green).
- At least three columns are needed for a valid saucer signal.
- All AO columns should be above the zero line.
Zero Line Crossing
- AO transitions from negative values to positive.
- Buy when the bar chart crosses the zero line.
- Only two columns are necessary: the first below the zero line, the second crossing it (from negative to positive).
- Simultaneous buy and sell signals are impossible.
Two Pikes Signal
- AO values are below the zero line.
- Look for a down-pointing pike (lowest minimum) followed by another down-pointing pike slightly higher (closer to zero).
- The bar chart should be below the zero line between the two pikes.
- If the bar chart crosses the zero line between the pikes, the signal doesn’t function.
- Each new pike should be higher (closer to zero) than the previous one.
- Additional higher pikes without crossing the zero line generate additional buy signals.
Sell Entry
Reversed Saucer Signal
- AO is below zero.
- The saucer signal is reversed.
- Follow the same rules as for the buy saucer signal but in the opposite direction.
Zero Line Crossing (Sell)
- AO transitions from positive to negative.
- Sell when the bar chart crosses the zero line.
- Similar to the buy zero line crossing but in the opposite direction.
Decreasing Zero Line Crossing
- AO values are decreasing.
- The first column is over the zero line, and the second is under it.
- Signals weakening bullish momentum.
- Be cautious in your trades.
Stop Loss and Take Profit
Stop Loss (SL)
- Set your stop loss below the recent swing low for buy trades.
- For sell trades, place the stop loss above the recent swing high.
- Adjust based on your risk tolerance and market volatility.
Take Profit (TP)
- For buy trades, target resistance levels or previous highs.
- For sell trades, aim for support levels or previous lows.
- Consider using trailing stops to lock in profits as the trend develops.
Conclusion
The Awesome Oscillator Indicator for MetaTrader 5 is a technical analysis tool that provides valuable insights into market dynamics. It is a 34-period simple moving average, plotted through the middle points of the bars (H+L)/2, which is subtracted from the 5-period simple moving average, built across the central points of the bars (H+L)/2.
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