Awesome Oscillator

Overview

The Awesome Oscillator is a histogram showing the market momentum of a recent number of periods compared to the momentum of a larger number of previous periods (by default, 5 vs. 34 periods).

This indicator is intended to show what's happening to the market for the current period (compared to the momentum of a longer period), and some traders use its signals for buying and selling decisions.

  1. Select Awesome Oscillator from the Add Study list
  2. If you want, type in new values instead of the 5 and 34 defaults.
  3. Click the + sign.

By default, green is used for rising bars and red is used for falling bars (as compared to their preceding bar). To change these colors, click over the histogram and select new colors from the Rising Colors and Falling Colors submenus.

Formula

The Awesome Oscillator (AO) is a 34-period simple moving average subtracted from a 5-period simple moving average. (The length of these periods can be changed from the defaults 34 and 5.)

That is,

AO = SMA (MEDIAN PRICE, 5 periods) - SMA (MEDIAN PRICE, 34 periods)

Where:

SMA - Simple Moving Average
MEDIAN PRICE = (HIGH+LOW)/2 (plotted through the central points of the bars)

Interpretation

Some traders interpret the following trends as signals to buy

  • Saucer - Occurs if (and only if) the bar chart is above the 0-line, and the bar chart has reversed its direction from downward to upward (concave upwards). The saucer occurs if, in any three columns, the second column is lower than the first and colored red and the third column is higher than the second and colored green.
  • Nought line crossing - Occurs when the bar chart crosses the 0-line in a positive direction. That is, it passes from the area of negative values to that of positive values.
  • Two pikes - Occurs when a pike below the 0-line pointing downwards (the lowest minimum) is followed by another downward-pointing pike that is somewhat higher (closer to the 0-line). This is the only signal to buy that falls below the 0-line.

Some traders use the reverse of the signals to buy as signals to sell. That is:

  • The saucer signal reversed (concave downwards) and below the zero-line.
  • The nought line crossing on the decrease - the first column over the 0-line, the second under it.
  • The two pikes signals above the 0-line and the pikes pointing upwards (the first one higher than the second).
Awesome Oscillator
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