Wednesday, November 4, 2009

Is the Awesome Oscillator Technical Indicator really awesome?!

Oh yes it is! I see why this is called the AO (Awesome Oscillator) and I think everyone should use it or at least give it a try. What is it and what is so awesome about it? Well for one it's really simple to read and understand.
Each bar of the histogram that is higher than the preceding bar is green. Each bar that is lower than the preceding bar is red.
The Awesome Oscillator Technical Indicator (AO) is a 34-period simple moving average, plotted through the middle points of the bars (H+L)/2, which is subtracted from the 5-period simple moving average, built across the central points of the bars (H+L)/2. It shows quite clearly what’s happening to the market driving force at the present moment.

Now how do we use it? I recommend to use the AO in combination with other indicators especially with different moving averages (as shown above) and other oscillators and technical indicators such as the RSI (relative strength index). The trading strategies I use are now mixed in with the AO for more accurate trading. I'll devote a whole section on this website soon about my new strategy, but I'll save that for later.

example of the AO chart;

Awesome Oscillator example

Zero Line Cross

As with other oscillators such as CCI, the Awesome Oscillator generates a trading signal when the zero line is crossed. A buy signal is generated when the histogram is crossed from below. A sell signal is generated when the histogram is crossed from above.

Saucer

A buy signal is generated when the oscillator is above the zero line has two descending red bars are followed by a green bar.

A sell signal is generated when the oscillator is below the zero line and two ascending green bars are followed by a red bar.

Twin Peaks

A buy signal is created when the histogram is below the zero line and the last indicators  low is higher than the preceding low. The histogram must remain below zero between these two troughs. When the higher low is made and followed by a green bar the buy signal is generated.

A sell signal is created when the histogram is above the zero line and the last bars high is lower than the preceding peak. The histogram must remain above zero line between the two peaks.  When the lower high is made and followed by a red bar a sell signal is generated.

There's a really good website out there that goes more into detail of the AO at Meta Quotes here.

The following information only pertains to those using Forex Capital Markets trading platform and want to use the AO. As you may know there's only one problem with my FXCM Trading Station II software and that is that it's not on the oscillator list! This can easily be fixed by following the steps below. I just did it myself a minute ago and it worked.

How to install the Awesome Oscillator in FXCM Micro Trading Station II:

  1. Just right-click on this link and choose "Save As..." from the menu.

  2. Go to "Charts/Chart/Manage Custom Indicators" menu of the Trading Station

  3. Click "Load"

  4. Choose the AO.lua file create at the previous steps


Result:



I hope it worked for many using FXCM. I was disappointed when I saw it wasn't included in the Oscillator list.


Disclaimer:

All opinions expressed, trade recommendations/advice on this website are solely of John van der Munnik and are not affiliated with any investment firm or any other organization. You should not make an investment only based using this website VDM Trading for your trading needs without seeking help from your own financial advisor.