What Is The Awesome Oscillator & How To Trade With It

Awesome Oscillator Explained

In the following article, we are going to take a look at the awesome oscillator indicator. This technical indicator for trading was developed by Bill Williams, who also created the accelerator oscillator and alligator indicator which help to form his trading strategy template that is readily available in the popular MetaTrader platforms. As most of you will know, the English term “awesome” means “great” or “fantastic”. Read on to find out if the awesome oscillator indicator lives up to its name.

What is the Awesome Oscillator?

The awesome oscillator is a relatively simple indicator because it is calculated from just two simple moving averages. As is typical for an oscillator, the awesome oscillator also oscillates around a zero line. The awesome oscillator indicator can identify:

  • Trending markets
  • Reversal points
  • Market momentum

With the help of the awesome oscillator, you can easily recognize the current trend direction. However, as with any trend-following indicator, there is a risk that the awesome oscillator will “lag” the current price movement and generate multiple false signals. Thus, I would only use it in unison with other market analysis.

This indicator can also be used to identify possible reversal points on the chart. The third application is to determine the strength of a movement. As you’ll see later in the article, you can use the awesome oscillator to create beneficial strategies. Overall, this indicator works best on smaller time intervals. In your trading platform, you should set the 5-minute, 15-minute, or 1-hour chart.

The awesome oscillator indicator is usually displayed below the chart in a separate window in the trading software. The calculated difference is illustrated with the help of bars, so that a line results which oscillates around the zero line. If a bar above the zero line is larger than the previous bar, this is shown in green.

Awesome oscillator indicator on EURUSD H1 chart
Awesome oscillator indicator on EURUSD H1 chart

How to calculate the Awesome Oscillator?

If you want to use an indicator like the awesome oscillator, it also makes sense to know how it is calculated. As already mentioned, two simple moving averages (SMA) are used for this:

  • 5 periods SMA
  • 34 periods SMA

The awesome oscillator is the difference between these two moving averages:

Awesome Oscillator = (5 period average of (high + low) / 2) – (34 period average of (high + low) / 2)

Awesome Oscillator Strategy

If an awesome oscillator bar has a lower value than a previous bar, it is shown in red. This can be a sign of a bearish market. On the other hand, if an awesome oscillator bar has a higher value than a previous bar, it is shown in green. This can be a signal that there is a bullish market.

A very simple forex strategy can be implemented with the awesome oscillator in the following way:

As soon as the zero line is crossed from bottom to top, a signal for a long trade is generated. In contrast, a signal for a short trade is generated as soon as the zero line is crossed from top to bottom. You could also use the awesome oscillator to spot price divergence and to look for trading opportunities when the bars change form red to green and vice versa.

Awesome oscillator indicator signals
Awesome oscillator indicator signals

You can also use the awesome oscillator along with double tops and double bottoms from the charts and awesome oscillator window.

Such a double bottom would arise as follows:

First, the indicator marks a new low at -50. The indicator then rises, but then falls again to the value of -50. However, the bears fail to fall below the value of -50. This suggests that prices will soon turn up.

Awesome oscillator strategy - double bottom buy setup
Awesome oscillator strategy – double bottom buy setup

This signal could, therefore, be used for a long trade. This strategy can be expanded by looking for divergences between the price chart and the awesome oscillator.

Awesome Oscillator Conclusion

The awesome oscillator can be well used as a confirmatory tool to trade in the direction of the trend and with momentum. There can be multiple variations of trading strategies based on this indicator which make it flexible whilst it is also easy to interpret.