What You Need to Know About Bill Williams Awesome Oscillator
Not so long ago on our site you could get acquainted with a very famous trading system of the equally famous trader Bill Williams Profitunity. To work on this system, the author created several indicators, and one of them has a very intriguing title - Bill Williams' Miraculous Oscillator (AO). And as you might have guessed, it is precisely this that we will analyze today.
Currency pairs: any
Trading time: around the clock
Recommended brokers: Alpari, RoboForex, Amarkets
Despite the intriguing name, this oscillator differs little from the well-known MACD. The principles of working with the indicator are generally the same. In essence, the indicator helps determine the driving force of the market by subtracting the values of the slow moving average with a period of 34, built at the median price, from the fast moving average with a period of 5. The histogram consists of two color columns - red and green. If the column is red, then it is lower than the previous; if green, it is higher. The histogram of the AO oscillator oscillates around the zero line and does not have overbought and oversold levels.
The AO indicator is included in the standard MT4 terminal kit and has no settings other than color. To add it to the chart of a trading instrument, open the menu “Insert / Indicators / Bill Williams / Awesome Oscillator”.
Periods of moving averages are firmly embedded in the indicator code. However, for experiments, you can download a set of custom indicators prepared by our permanent king of indicators Pavel888 on the forum in this section. There are many options for the AO indicator, including those with period settings.
Median Price is the quotient of dividing the sum of the maximum price and the minimum price by two. Sometimes a Typical Price is also used for the calculation, which is obtained by dividing the maximum, minimum and closing prices by three.
The method of calculating the AO indicator is very simple - it is enough to calculate the difference in moving averages from the median price with periods of 34 and 5:
As you can see, two moving averages completely repeat the shape of the indicator. Thus, the calculation formula will look as follows:
AO = SMA (Median Price, 34) - SMA (Median Price, 5)
SMA - Simple Moving Average
Median Price - median price.
Signals Generated by Awesome Oscillator
Despite the fact that the AO belongs to the category of oscillators and was developed as one of the filtering tools in the Profitunity strategy, this indicator also gives independent signals.
Zero line crossing or Zero Cross signal
The simplest basic signal generated by the Awesome indicator is the Zero Line Cross. A buy signal is generated if the histogram crosses the zero line from the bottom up. The first column is below the zero line, and the second is above the zero line. Signals for sale are exactly the opposite.
Two Peaks Signal
Signal «Twin Peaks ”(or“ Two Peaks ”) for a purchase is formed if a second local minimum appears above the previous one, and these local minimums are below the zero mark. For sale, you need to find two dropping highs. If a third local minimum is formed above the second or a maximum below the second for sales, then it is considered as an amplifying signal:
In fact, this is a rather weak signal, since there may be four successively lowering maximums, as in the figure above.
The Saucer (or Saucer) signal for purchases is generated if the Awesome Oscillator is above the zero line, and the histogram changes its direction from descending to ascending, that is, of the three columns of the histogram, the first has any color, the second is red and lower than the first, the third column is above the second and green. This signal is sometimes called "Saucer", and it looks like this:
This is the only buy signal that occurs when the histogram is above the zero line. This is also a rather weak signal, since after the first peak / trough the movement may be too short-lived, and you can not make money on it. It is best to take “saucer” signals when the first peak or trough is close to the zero line, and the indicator still has a way to fall, as in the case of sales in the figure above.
Remember that for the Saucer signal to buy, the histogram should be exactly above the zero line, and for sales, below. In fact, this model describes the entrance to the continuation of the trend after a small pullback, so on the chart to enter on this signal you should see an uptrend, and the indicator itself should ideally rise sequentially from the opposite zone. Here is a good shopping example:
By the way, this version of a sell signal is commonly called the “Inverted Saucer”.
Awesome Oscillator is an interesting and effective tool that can give good input signals. Nevertheless, like any other indicator, Awesome Oscillator should be used as part of the trading system in conjunction with other indicators. Remember - indicators that are not mistaken do not exist. Observe money management and do not overestimate the risks of transactions. Follow the rules of your trading system, which has been properly tested on historical data.
The signals themselves from the Awesome Oscillator indicator are quite unambiguous and easy to interpret, so their use in their trading systems can be recommended to beginners. At the same time, it is worth remembering that the AO indicator catches short-term impulses, and it is worth adjusting the position retention time on the system based on it to 5-10 candles, no more.