The Awesome Oscillator of Bill Williams

The Awesome Oscillator (AO) is a technical indicator developed by Bill Williams which determines market momentum (the second of the five dimensions of the market according to Williams) at a specific time based on the last five bars, which momentum is compared with the momentum of the last 34 bars.

In this way the Awesome Oscillator is simply the difference between the simple moving average of 34 periods and the simple moving average of 5 periods which are calculated based on the midpoints of the bars (High + Low) / 2. The Awesome is displayed on the graph as a histogram:

Buy signal “Saucer” of the Awesome Oscillator

The buy signal “Saucer” of Awesome Oscillator is generated when the histogram is above zero line and changes its direction from downtrend to uptrend.

In this case, the bar “A” of the histogram, regardless of color must be greater than the bar “B” of the histogram. Also, the bar “B” of the histogram should be red while the bar “C” (signal) of the histogram should be green.

Once the signal has been generated, place a Buy Stop order one point above the price bar that corresponds to the bar “C” of the histogram.

The most recent “Saucer” signal always cancels previous signals (we cannot forget to cancel all pending orders once the signal is canceled). It is important to keep in mind that we only buy if the current histogram bar is green and sell only when the current histogram bar is red.

Sell signal “Saucer” of the Awesome Oscillator

The sell signal “Saucer” of the Awesome Oscillator is the opposite of the buy signal which was described above. This signal is generated when the histogram of Awesome Oscillator is below the zero line and changes its direction from upward to downward as shown in the following example:

 

A buy or sell signal is generated whenever the histogram crosses the zero line either from the bottom up (buy signal) or from above to below (sell signal) as shown in the image below:

When there is a buy or sell signal, we place a Buy Stop order (or Sell Stop order) one point above the high of the bar price (or below the low of the price bar) that corresponds to the first bar of the histogram that is crossing the zero line.

In a buy signal, the bar “B” (signal) should be green, but in the case of a sell signal, then this bar should be red.

Trading Signal “Twin Peaks” of the Awesome Indicator

A buy or sell signal known as Twin Peaks of the Awesome indicator occurs when the histogram is below (or above) the zero line and the last low of the indicator is higher (or the latest high of the indicator is lower) than the previous low (high). Between these two lows (or two highs) the histogram can never be greater (or less) than zero, as this invalidates the signal.

The Twin Peaks buy signal is in fact the only buy signal that occurs below the zero line. Similarly, the Twin Peaks sell signal is the only sell signal produced above the zero line.Once the signal is generated, place a Buy Stop order (or Sell Stop order) one point above the high (or one point below) of the price bar that corresponds to the bar of the histogram that gives the entry signal to the market. In the case of a buy signal, the bar “C” (signal) of the histogram should be green while in the case of sell signal the bar should be red.

It is important to understand that we never buy if the signal bar is red and we never sell if the signal bar is green. If a bar in the opposite direction is produced before the execution of the pending order, which was placed in the direction of the Awesome Oscillator signal, then the signal should be ignored and therefore it is necessary to cancel the order.