# Best oscillator trading

AO compares 2 simple moving averages: SMA 5 is a 5-period simple moving average that accounts for a short-term move and is calculated as arithmetical average of median prices for the recent 5 bars. SMA 34 is a period simple moving average that accounts for a long-term move and is calculated as arithmetical average of median prices for the recent 34 bars. Comparing a short and long periods is usual for many technical indicators. The calculated values are usually drawn as a histogram of red and green bars as its most usual format.

A bar turns green when its value exceeds the value of the previous bar. A red bar appears when a bar is lower than the previous bar. Green does not necessarily mean positive and red does not surely mean negative. So the histogram may show green bars when AO is below zero but its values are growing. There are 4 basic signals to sort out data provided by the Awesome Indicator. When the AO value crosses above or below the Zero Line, it indicates a change in momentum.

If AO goes from negative to positive territory this gives a chance to buy. If AO goes from positive to negative this gives a chance to sell.

However, to be more specific crossing the Zero Line means a new 1st wave of a new trend is coming. Divergence happens on a chart when the price and its relevant indicator are moving in opposite directions. Convergence appears on a chart when the price and its relevant indicator are moving in the same directions. Convergence is opposite to divergence and may arise after the failed divergence.

Depth of correction of relevant lows in uptrend or highs in downtrend helps to distinguish a momentum move from a correction move. In down trend depth of correction is estimated by tops of AO. Despite statements of Mr. Bill Williams that the Awesome Oscillator is his sole development within the strategy of chaos, in practice it is only a part of the truth. The only thing that was introduced by Williams in this tool is a convenient display of 2 moving averages in the form of a histogram.

Have a look at the below chart:. Do you notice coincidence between AO and 2 moving averages? In practice, AO histogram just illustrates simple crossing of 2 moving averages applicable to the median price! This is the simplest AO Trading Strategy: Buy when AO crosses above the Zero Line.

Sell when AO crosses below the Zero Line. If you use this strategy as it is, you may get quite a number of good entries if you catch a current trend. AO Saucer Strategy defines rapid changes in momentum. It compares three consecutive bars, all three either positive or all three negative. All the 3 studied bars should be either above zero or below zero.

This strategy allows to jump into a current trend after a small pullback. However, this setup is too simple as well. The 2nd low is higher than the 1st low and followed by a green bar in AO. The 2nd high is lower than the 1st high and followed by a red bar on AO. This is a reversal strategy. It helps to look for an early entry against the existing trend into a new trend at the very beginning.

This strategy allows to enter early in the trend reversal — prior to a Zero Line Cross signal. If you use this strategy as it is, you may get quite a number of good entries if you catch a current trend. AO Saucer Strategy defines rapid changes in momentum. It compares three consecutive bars, all three either positive or all three negative.

All the 3 studied bars should be either above zero or below zero. This strategy allows to jump into a current trend after a small pullback. However, this setup is too simple as well. The 2nd low is higher than the 1st low and followed by a green bar in AO. The 2nd high is lower than the 1st high and followed by a red bar on AO. This is a reversal strategy. It helps to look for an early entry against the existing trend into a new trend at the very beginning. This strategy allows to enter early in the trend reversal — prior to a Zero Line Cross signal.

When all the trading world waits for AO to cross its zero line as a signal of reversal, this pattern allows to jump in early in order to multiply your gains and reduce risks. You may know that Bill Williams used his Awesome Oscillator to determine the 1st wave of a new trend after the reversal. Zero Line Cross shows us a new A wave against the previous trend. There is a direct consequence from the first signal.

The new A-wave may appear on several charts at the same current moment. It will belong to the oldest chart however. The reversal A wave should beat high or low of the previous B correction. Besides, we use a modified linear view of the Awesome Oscillator. The full description of our Wave Strategy will be published at Mtradee. Our market analysis is featured at Market Analysis.

Your email address will not be published. Posted on Aug 4th, Why is it called awesome? What does an oscillator do? What is the main secret of AO? Have a look at the below chart: A Buy Saucer Setup: AO is positive; 2 previous bars of AO are red; the 2nd red bar of AO is a little bit shorter than the 1st bar; the 3rd bar of AO turns green and it is a signal bar; buy on the open of the next bar. A Sell Saucer Setup: AO is negative; 2 previous bars of AO are green; the 2nd green bar of AO is shorter than the 1st bar; the 3rd bar of AO turns red and it is a signal bar; buy on the open of the next bar.

A Buy Twin Peaks Setup: AO is negative; there are 2 lows of AO and the 2nd low is higher than the 1st low, so we have divergence between the price and AO; the next bar after the 2nd low turns green. A Sell Twin Peaks Setup: AO is positive; there are 2 highs of AO and the 2nd high is lower than the 1st high, so we have divergence between the price and AO; the next bar after the 2nd low turns red.

AO is positive and made 2 highs; draw a slope trendline connecting these 2 highs; buy once a new bar on AO will break this slope trendline. AO is negative and made 2 lows; draw a slope trendline connecting these 2 highs; buy once a new bar on AO will break this slope trendline.

We will use only its 2 main signals in our Wave Strategy: Visited times, 1 visits today.