The Bill Williams’ Awesome Oscillator (AO) is a technical indicator derived from a moving average. Essentially, AO is a simple moving average with a period of 34, plotted on the median prices of bars (H+L)/2, which is then subtracted from a simple moving average with a period of 5, also calculated on the median prices of bars (H+L)/2. Like any other oscillator, the Awesome Oscillator reflects the momentum of the market.
The Bill Williams’ Awesome Oscillator is standard in the MetaTrader 4 trading terminal.
Trading Signals from the Awesome Oscillator Indicator
Buy Signal ‘Bowl’ for the AO Indicator
This buy signal occurs when the AO histogram moves above the zero line. The ‘Bowl’ appears when the histogram changes direction from downward to upward, with the current bar higher than the previous one and changing color from green to red. When using the ‘Bowl’ signal for AO, it’s important to remember that the histogram bars must be above the zero line.
Buy Signal When the Awesome Oscillator Crosses the Zero Line
The buy signal for the AO indicator occurs when the histogram crosses the zero line from top to bottom, meaning the Awesome Oscillator moves from negative values to positive. For this signal to form, only two bars are needed – the first below the zero line and the second crossing it.
Buy Signal for the Awesome Oscillator ‘Two Minima’
This buy signal for the Bill Williams’ Oscillator occurs only when the histogram is in the negative zone. The forex indicator must form a minimum, followed by another minimum higher than the previous one, closer to the zero line. If the new minimum causes the AO histogram to cross the zero line, this signal is invalid, but the ‘Crossing’ signal becomes valid.
Selling Signals from the Bill Williams’ Oscillator
AO selling signals are mirrored: the ‘Bowl’ signal is flipped and searched for when the indicator is below zero; ‘Zero Line Crossing’ goes downward – the first bar is above zero, the second is below; and ‘Two Minima’ become ‘Two Maxima’ when they are above the zero line.
Formula for Calculating the Awesome Oscillator Indicator
MEDIAN PRICE = (HIGH+LOW)/2,
AO = SMA(MEDIAN PRICE, 5)-SMA(MEDIAN PRICE, 34),
where:
- MEDIAN PRICE — median price;
- HIGH — high price of the bar;
- LOW — low price of the bar;
- SMA — simple moving average.
FAQ
What is the Awesome Oscillator?
The Awesome Oscillator is a technical indicator developed by Bill Williams that measures market momentum by comparing two simple moving averages of the median price.
How is the Awesome Oscillator calculated?
The AO is calculated as the difference between a 5-period and a 34-period simple moving average of the median price (H+L)/2.
What are the main trading signals for the Awesome Oscillator?
The main signals include the ‘Bowl’ pattern, zero line crossings, and ‘Two Minima’ or ‘Two Maxima’ formations, which indicate potential buy or sell opportunities based on the oscillator’s movement.
