Awesome Oscillator

The Awesome Oscillator (AO) is an indicator for the use of technical analysis in financial trading.

It was developed by the American technical trader Bill Williams, and displays the market momentum of a number of short periods versus the momentum of a number of larger periods.

These are represented by a series of red or green bars, assisting traders in entering upon established trends.

Bill Williams developed the Awesome Oscillator (AO) alongside his Accelerator Oscillator (AC).

At its heart, the Awesome Oscillator is simply a 34-period simple moving average (SMA), subtracted from a 5 period SMA, in the form of a histogram that oscillates with red or green bars, above and below a middle zero line.

A bar of the AO closes as green with a value higher than its previous bar, and closes as red with a value less than the previous bar.

Unlike a lot of the other oscillators which aim to catch strong trends, the AO does not have any overbought or oversold levels.

Thus, if the green bars move from below the zero line to above the zero line, it implies a bullish trend is in formation.

If the red bars move from above the zero line to below the zero line, it implies a bearish trend is in formation.

This can also be a useful indicator to keep a trader out of the market.

If the AO histogram is red, longs should not be considered, and if the histogram is green, shorts should be not considered.

How to Trade Awesome Oscillator

Traders have devised a number of ways to trade using the Awesome Oscillator, but for our purpose we’re going to highlight one example, which is one of the methods that Bill Williams himself has explained, called the Zero Line Cross.

In this instance, if the AO crosses above the zero line, this can be viewed as a possible long opportunity, and when the AO crosses below the zero line, this can be viewed as a possible short opportunity.

This crux of this method is based on the notion that a crossing of the zero line is signifying a change in momentum.