Awesome oscillator indicator is a useful comparison tool when doing technical analysis in coin trading. This indicator is often combined with MACD, MA line, etc. Let’s learn more about Awesome Oscillator and trading strategies with this indicator with Crypto Trading.
Tổng quan về awesome oscillator indicator
Awesome oscillator indicator is a technical indicator developed by trader and analyst Bill Williams.
Decode what is an awesome oscillator indicator.
Awesome oscillator indicator (AO) is a market momentum indicator. AO can compare recent market movements with historical market movements. AO uses a zero line in the middle. On either side of this line are price movements plotted based on the comparison of two different moving averages.
Traders can use the information provided by the AO to forecast market momentum and whether the current trend will continue or reverse. If the Awesome Oscillator is above the zero line, the market is currently bullish but momentum may be shifting to the downside. If the Awesome Oscillator is below the zero line, the opposite will happen.
However, AO does not guarantee that the market will behave in a certain way. Therefore, traders will have to practice risk management when trading with Awesome Oscillator. Risk management includes setting stop-losses and limits on open positions in case the trading signal is unclear.
How to calculate an awesome oscillator indicator
The Awesome Oscillator is built on the difference between two simple moving averages (SMAs) of different time frames. Here is how the Awesome Oscillator is calculated:
1. Calculate average price:
The average price is determined by taking the average of the highest (High) and lowest (Low) prices over a specific period.
Average Price = (High + Low) / 2
2. Calculate the 5-period SMA of the Average Price:
Take the average price of the last 5 periods and divide by 5.
SMA (5) = Sum of the last 5 average prices / 5
3. Calculate the 34-period SMA of the Average Price:
Summing the average price over the last 34 periods and dividing by 34.
SMA (34) = Sum of the last 34 average prices / 34
4. Determine the AO indicator value:
Difference between 5-period SMA and 34-period SMA.
AO = SMA (5) − SMA (34)
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Learn the secret of trading with an awesome oscillator indicator
Depending on the market, you will choose the right Awesome Oscillator trading strategy. Each AO strategy seeks to confirm or reject trends. They also help identify potential reversal points. Thus, the Awesome Oscillator can help traders determine when to open a long or short position. This decision will be made based on the signals provided by the AO.
Saucer Flying Saucer Strategy
A saucer is used to identify potential rapid changes in momentum. The Saucer strategy involves looking for changes in three consecutive bars that are on the same side of the zero line. The Saucer can be either bullish or bearish. A bullish Saucer can be identified when the AO is above the zero line and there are two consecutive red bars. Condition 1 is that the second bar is lower than the first. Condition 2 is that a green bar must follow.
On the other hand, a bearish saucer can be identified by two consecutive green bars below the zero line. The condition is that the second bar is lower than the first bar. This is immediately followed by a red bar.
Many traders will look to enter a long position on the third bar or on the bar immediately leading up to the third bar. As long as this bar is also green. Some traders may use a stop on their position to manage risk.
Twin Peak Strategy
The AO double-top strategy works in both bull and bear markets. A bull double top is when there are two momentum peaks below the zero line. Some traders believe that the green bar after the second peak should be higher than the first peak. This indicates that there will be a breakout above the zero line.
Note that for the pattern to be valid, the bottom between the two peaks must not cross above the zero line. The green bar usually acts as a buy signal. At this point, traders try to capitalize on the upward momentum to make a profit. The price chart below shows an example of the Awesome Oscillator bullish double-top strategy.
A bearish double top is when there are two peaks made up of green bars above the zero line. The second peak must be lower than the first for the signal to be valid and the red bar must be right after the second peak.
The bottom between the two peaks must not break below the zero line, otherwise the signal is invalid. The red bar following the second peak will be a sell signal. Here the trader using this strategy will decide to open a short position. The price chart below shows an example of the AO bearish double-top strategy.
Zero Line Crossing Strategy
A bullish zero crossover occurs when the AO crosses above the zero line. A bearish crossover occurs when the AO crosses below the zero line. These moves can signal a reversal from the previous market trend. Traders will typically open a short position when the Awesome Oscillator crosses below the zero line. Conversely, they will open a long position when the AO crosses above the zero line.
For a zero-line cross in a downtrend, traders should look for a series of three or more red bars in a row. You must remember to do this before opening a short position. For a zero-line cross in an uptrend, traders should look for a series of three or more green bars in a row before opening a long position.
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Crypto Indicators that should be combined with awesome oscillator indicator
The Awesome Oscillator is often combined with various Crypto Indicators such as MACD, RSI, MA, etc. AO can also be combined with Bollinger Bands in Bollinger band scalping. AO is also “paired” with the Average Directional Index (ADX) trend indicator. However, this article will cover the 3 indicators that are most commonly combined with AO in the crypto market. These three indicators include MACD, MA, and Stochastic Oscillator (SO). Let’s take a closer look at what information AO combined with MACD MA or SO will bring.
Stochastic Oscillator and Awesome Oscillator Indicators
In How to Use the Stochastic Indicator, the combination with AO is often mentioned. The Awesome Oscillator and Stochastic Oscillator when combined will help traders identify overbought or oversold conditions. If the AO indicates an uptrend (e.g. through a bullish saucer) and the Stochastic Oscillator is below 20 (oversold), then this is a bullish signal. Similarly, a bearish signal comes from the AO combined with the Stochastic indicator above 80 (overbought).
MACD indicator and awesome oscillator indicator
The main purpose of combining MACD and the Awesome Oscillator is to identify momentum changes. MACD combined with AO also helps to identify potential trend changes. This is because both AO and MACD measure market momentum. For example, when both indicators show a bullish divergence with price, it can be a strong signal of an upcoming upside reversal. If AO shows a bullish crossover and the MACD line is above its signal line, then the bullish momentum is very clear.
MA Line and Awesome Oscillator
Traders combine MAs with AO to validate AO signals and identify potential trend confirmations. When both AO and a short-term MA (such as a 20-period SMA) cross in an upward trend from their baselines, it can reinforce bullish sentiment. Conversely, a simultaneous bearish crossover can reinforce bearish sentiment.
summary
The article has provided details about the awesome oscillator indicator. The content includes the definition, calculation formula as well as how to use this tool. Awesome Oscillator will be more effective if you combine it with MACD, MA line, or Stochastic Oscillator. Each combination will be suitable for each specific case. Don’t forget to follow the Crypto Trading blog if you are interested in coin investment.
FAQs
Can an awesome oscillator indicator be used independently?
Awesome Oscillator can be used independently. However, this depends a lot on what you want to use AO for. On its own, AO can be used to measure momentum and generate buy/sell signals. When combined with other indicators, the results will be more accurate, helping traders make effective trading decisions.
What information does Awesome Oscillator provide?
AO provides information about price momentum and market trends. It also gives signals about whether the price is rising or falling, the strength of the trend. AO can also be used to identify entry and exit points.
What are the advantages of the awesome oscillator indicator?
AO is very useful in trending markets, a leading indicator to measure market momentum. AO is also used for many different asset classes. For example crypto, forex, stocks, etc.
