Awesome Oscillator is a technical indicator that is commonly used in financial markets. The main usage of this indicator is to confirm or disprove trends that are present on the price charts. This is done using the combination of past historical and current data. Along with analyzing trends’ strength, the indicators can produce bullish and bearish trading signals.
Awesome Oscillator indicator overview
The Awesome Oscillator in FX is a great technical indicator that is commonly used in financial markets. As the name suggests, it is a part of the oscillator indicators group, where we can also see indicators such as RSI, MACD, and Stochastics. What differs this indicator from the rest of the oscillators is that it does not swing between defined values and is unbound.
- Indicator Type: Leading indicator
- Best time frame to use: 34-days SMA and 5-days SMA
- Goes best with: MACD indicator
- Placed on: Below the chart
Technical details of Awesome Oscillator indicator
The Awesome Oscillator indicator in Forex trading measures market momentum and helps us identify potential trend reversals by simply comparing the 34-period simple moving average to the 5-period simple moving average.
Calculating Awesome Oscillator
When calculating the Awesome Oscillator indicator in Forex trading we simply subtract the 34-period moving average from the 5-period moving average. Before calculating AO, we first need to calculate the two moving averages we will be needing for this calculation. These moving averages represent the median price of an asset in a given time frame, and we need to calculate the median price for the last 34 days and 5 days.
The formula for calculating Simple Moving Average is as follows:
SMA = (High price + Low price) ÷ 2
Here high and low prices are for each session. Therefore, when calculating the 34-day average, we look at the highest and lowest prices of an asset during the last 34 days, the same goes for the 5-day average.
Once this is calculated we can now easily calculate the Awesome Oscillator using the following formula:
Awesome Oscillator = 5-period SMA – 34-period SMA
After this Awesome Oscillator is placed on the histogram and moves up and down 0 centerline.
What does Awesome Oscillator tell us?
As we mentioned earlier, Awesome Oscillator is a trend-identifier indicator. To put it simply, it shows us if the market is in an uptrend or in a downtrend. Since we are subtracting 34-period SMA from 5-period SMA, it is possible to have both positive and negative numbers, and this is exactly what traders are looking for. If the 5-period SMA is smaller than the 34-period SMA, Awesome Oscillator falls below the centerline, indicating that we have a downtrend on our hands. On the other hand, if we get a positive number as a result, Awesome Oscillator indicates the ongoing uptrend.
Practical application of Awesome Oscillator indicator
What makes the FX Awesome Oscillator indicator so popular is how great the indicator is at displaying trends.
Awesome Oscillator is usually represented by green and red bars that sit either above or below the 0 neckline. When the green bar appears, it means that the Awesome Oscillator indicator is higher compared to the previous bar, and the opposite is for the red.
The Awesome Oscillator indicator in FX trading is easy to use and even beginner traders can easily implement this indicator into their charts. Now that we know what this Awesome Oscillator indicator means, let’s look at a few Awesome Oscillator examples and learn how can we use it in different situations.
One of the most simple ways we can use Awesome Oscillator in FX trading is the zero-line crossover strategy. This strategy is based on the location of the Awesome Oscillator on the 0 neckline. If the Awesome Oscillator falls below the 0 neckline it indicates that short-term bearish run is up ahead and traders can open short positions. While on the other hand, if the Awesome Oscillator goes over this neckline it signals bullish run, and we can open Long positions. But be careful when using this strategy as this is not always accurate, and it is best to use Awesome Oscillator in combination with other indicators.
Another good way to use the Awesome Oscillator indicator in Forex trading is to use it with the Twin Peaks strategy. This is a great way to find upcoming trends before they form, and it is based on two peaks that form either above or below the neckline.
If these two peaks form above the neckline, we have an upcoming bearish run signal. For the formation to be considered a Twin Peak, the second peak should be closer to the neckline and the Awesome Oscillator should not cross the neckline between these peaks. To confirm the trend reversal, the next histogram after the second peak should be red, as it signals that selling power has increased.
On the other hand, if these two peaks form below the neckline, they follow the same principals, the second peak should be closer to the neckline, and Awesome Oscillator should not have crossed the neckline in between these two peaks. If the histogram after the second peak is green, we have a signal that the uptrend is starting, and we can open long positions.
History and other useful details of Awesome Oscillator indicator
The Awesome Oscillator indicator falls under the umbrella of indicators developed by legendary chartist Bill Williams. He described the Awesome Oscillator as the best momentum indicator and added that it is as simple as brilliant. What makes this indicator so widely used is that it can be easily implemented in different financial markets be it Forex, stocks, or even crypto markets. All in all, this is a great indicator that can be used by both beginner and experienced traders.
FAQs on Awesome Oscillator Indicator
Is Awesome Oscillator indicator useful in Forex?
Yes, the Awesome Oscillator indicator is a highly useful Forex indicator that can indicate upcoming trend reversals. It is an easy indicator to use and even beginner traders can implement it in their trading activities.
How to use Awesome Oscillator in Forex?
Forex trading Awesome Oscillator can be installed on your MetaTrader platforms. The indicator is easy to run and produces reading signals during crossovers
What is Awesome Oscillator formula?
Calculating Awesome Oscillator is really easy, but before that, we need to calculate 32-period and 5-period SMAs. Once they are calculated then we can use the following formula for Awesome Oscillator calculations.
Awesome Oscillator = 5-period SMA – 34-period SMA