What is an oscillator?
Well, an oscillator is data or object moving back and forth between two points, say A & B.
Another way to think of an oscillator in trading is that it is as an ‘on’ and ‘off’ kind of indicator.
Mostly measuring momentum, trend, and sometimes helping in picking trend reversal points.
One such oscillator in Expert Option is the Awesome Oscillator, or if you like it, the AO.
What is the Awesome Oscillator?
The awesome oscillator was developed by renowned charting enthusiasts and technical analyst, Bill Williams. It is an indicator that tells you more about the weakness and strengths of the asset you are currently analyzing.
Additionally, the Awesome Oscillator can be used to measure momentum and act as trend confirmation, especially when anticipating looming reversals.
How does the Awesome Oscillator work?
The AO does all these by comparing the most recent market momentum with the general momentum over a specific period (determined by you).
By leveraging histograms, the Awesome Oscillator can tell you whether the market is up or down.
To come up with the histogram, the AO takes in the mistakes and shortcomings of the standard momentum oscillators and adjust those using calculations.
This way, it comes in handy when confirming trends or other scenarios identified by other indicators through technical analysis.
How is the Awesome Oscillator calculated?
Now, I want to take you deep into how the Awesome Oscillator is calculated. I know how you hate this but bear with me for a second.
Having an understanding of how an indicator is calculated helps traders make prudent decisions especially when faced with complex conditions.
Even though the Expert Option trading platform has taken care of the calculations part and all you can do is just add the oscillator, you still need this to further understand what’s happening on the charts.
With knowledge of what makes an indicator tick, you are in a better position to identify its strengths as well as its weaknesses.
That said, this is the AO’s formula:
The Awesome Oscillator calculates the difference of a 34-period and 5-period Simple Moving Average. Here, the simple moving average used is not calculated in the way you are used to (closing prices), rather using each candle’s midpoints.
This gives us:
MEDIAN PRICE = (HIGH + LOW) /2
AO = SMA (MEDIAN PRICE, 5) – SMA (MEDIAN PRICE, 34)
MEDIAN PRICE = median price;
HIGH = the highest price of the candle;
LOW = corresponds to the lowest price of the candle;
SMA = simple moving average.
Are you still with me?
Let’s add this indicator to your trading chart on Expert Option. The calculations don’t matter.
How to add the Awesome Oscillator to chart on Expert Option.
As always, make sure you are logged into your trading account then follow these steps to add the oscillator:
- Locate the indicators tab on the top-right corner on your chart and click on it.
- You will get a list of Expert Option indicators. From the list, choose Awesome Oscillator.
- The next window is the settings. Leave as is.
- Click Apply to add the oscillator to the chart.
Once you have successfully added the Awesome Oscillator, it is time to look for tradable signals.
To get these signals, you first must understand what the indicator is communicating.
What is the Awesome Oscillator telling you?
When predicting trends on Expert Option, you need to understand the ‘language’ of the indicators. Because without that, you are just another guy with dreams of making money online.
Moving on, the AO is a histogram made up of bars that turn red to green and back based on the prevailing market trend.
As an oscillator (moving back and forth), the awesome oscillator also has values moving above and below a zero centerline.
When the fluctuations are activated, the histogram is plotted in either red or green bars.
When you see green, it means that the AO value is higher than the previous bar. On the flip side, a red bar means the value is lower.
Additionally, when the Awesome Oscillator’s values are above the zero line, it is an indication that the shorter period is trending a little bit higher than the longer period.
Conversely, when the AO’s values are below the zero line, the short-term period is trending lower than the longer period.
Talking of awesome oscillator’s values, typically, 5-period and 34-period are used to represent the fast and the slow period respectively.
If you are looking for the Awesome Oscillator’ trade entry signals here they are:
Wait for the slope of the histogram to dip below the zero line and the change in colors. When that happens, get ready to trade.
Just like any other indicator using histograms, up crossovers depict an impending uptrend. At the same time, the down crossover the zero line shows a possibility of an uptrend reversal (downtrend).
Expert Option trading strategies using the Awesome Oscillator.
With an understanding of what the AO’s signals mean, we can now comfortably look at trading strategies on Expert Option you can implement almost immediately and make money trading.
Expert Option trading strategy 1: Twin Peaks.
Twin peaks as its name suggest is a pattern of two peaks appearing on the same side of the zero line.
For this reason, there are two types of twin peak setups:
A Bullish Twin Peaks setup.
It is developed when two peaks are forming below the zero line.
As a confirmation, the second peak must be higher than the first peak followed by a green bar. Also, the trough between these two swings must remain below the zero line throughout the trend.
Here is the bullish Twin Peaks setup checklist:
- The AO must be below the zero line.
- The second peak must be higher than the first one.
- A green histogram bar must follow the second peak.
A Bearish Twin Peaks Set Up.
Formed when the two swings are above the zero line. The second high is lower than the first peak and confirmed by a red histogram bar.
Expert Option trading strategy 2: zero line crossover.
When you see the Awesome Oscillator cross the 0 line, it is an indication that the short-term momentum is rising faster than the longer one. As such, this is a looming bullish buying opportunity.
Sell or consider exiting the trade when you see the AO crossing below the zero line and continue swinging below it.
Expert Option trading strategy 3: Saucer strategy.
This strategy received its name because of its striking resemblance to that of a saucer.
It is formed when the market reverses its direction, instead of moving up, it moves downward. The second bar is lower than the first one and is red. There is an additional third bar, which is higher than the second bar and is colored green.
For all these to be validated as a true saucer, there must be three consecutive histograms. And based on their location, it can be a long or short position.
Long saucer position.
- Awesome Oscillator is above the zero line.
- Two consecutive red bars.
- The 2nd bar is shorter than the 1st.
- 3rd bar is green.
If the saucer set up meets these conditions, you should consider entering a buy position on the 4th candlestick.
Short saucer position.
- Awesome oscillator is below the zero line.
- two consecutive green histogram bars.
- the 2nd green bar is shorter as compared to the 1st bar.
- 3rd bar is red.
If you see such a set up meeting all these conditions, consider shorting the fourth candlestick.
As you already know, there is no indicator able to deliver 100% accurate signals. You should, therefore, pair this awesome oscillator with other indicators like the RSI.
The information provided does not constitute a recommendation to carry out transactions. When using this information, you are solely responsible for your decisions and assume all risks associated with the financial result of such transactions.