How to Use the Awesome Oscillator?

Awesome Oscillator (AO) is named by Bill Williams’ books and is analogous to the MACD indicator. Like MACD, it is a classic oscillator and gives the same signals of the current movement reversal.

Before reading the article and writing your questions in the comments section, I recommend to watch this video. It’s not long but covers the biggest part of questions on the topic.

The only innovation which was introduced by Bill Williams into this indicator is it is based on the median prices (Median Price), and not closing prices like typical MACD.

Awesome Oscillator formula

AO = SMA (Median Price, 34) — SMA (Median Price, 5)

• Median Price is the median price;
• Median Price = (High + Low) / 2
• High — the highest bar price;
• Low — the lowest bar price;
• SMA — Simple Moving Average.

Thus, Awesome Oscillator is the difference between 5-period normal moving average from the median price and 34-period normal moving average from the median price.

Indicator description

Awesome Oscillator (AO) shows the ratio of the driving force (market equilibrium changes) of the short-term market (the last 5 periods) compared to the long-term (last 34 periods). It is similar to the MACD histogram indicator and also oscillates around the zero mark, but in contrast to the latter it has fixed lengths of sliding and does not have a signal line.

Awesome Oscillator signals

2. Awesome Oscillator buy signal is formed if the Awesome Oscillator is above the zero line and the histogram changes its direction from descending to ascending. Furthermore, from the three columns of the histogram the first has any color, the second is red and lower than the first, the third column is higher than the second and is green (Picture 2). This signal is sometimes called Saucer, it looks like this:
3. Awesome Oscillator signal for buy is formed if the histogram crosses the zero line from the bottom up i.e. the first column is below the zero line and the second is above the zero line (Picture 3).

3. Awesome Oscillator signal for purchase is formed if the second local minimum is higher than the previous one and both these local minima are below the zero mark.

If the third local minimum is formed above the second, then it is treated as another signal for purchase.

Sell signals occur once:

1. The Awesome Oscillator signal for sale is formed if the Awesome Oscillator is below the zero line and the histogram changes its direction from ascending to descending, i.e. from the three columns of the histogram, the first has any color, the second is green and above the first, the third column is below the second and is red.

2. The Awesome Oscillator signal for sale is formed if the histogram crosses the zero line from top to bottom. I.e. the first column is above the zero line, and the second is below the zero line.
3. The Awesome Oscillator signal for sale is formed if the second local maximum is lower than the previous one and both these local maximums are above the zero mark.

If the third local maximum is formed below the second, then it is treated as another signal for purchase.

Very often, the Awesome Oscillator signals are used in conjunction with the signals from another Bill Williams’ indicator — Acceleration/Deceleration Oscillator (AC). In this case, the following tactics are usually used. The purchase occurs if the Awesome Oscillator changes color from red to green, and two green bars appear on the histogram, and the Acceleration/Deceleration Oscillator indicator has already turned green. Exit from the open position for purchase occurs if both indicators change color to red again.

Conversely, the sale occurs if the Awesome Oscillator changes color from green to red, and two red bars appear on the histogram, and the Acceleration/Deceleration Oscillator indicator has already turned red. The exit from the open position for sale occurs if both indicators change color back to green.