If you are looking for an indicator that can help you spot reversals or trend continuations, the Awesome Oscillator might be worth adding to your Forex charts.
In this post, we will explain exactly what this momentum indicator is and how you can use it to help you spot trade opportunities.
The Awesome Oscillator measures momentum, and was invented by Bill Williams. Sometimes, it is simply abbreviated as AO.
When you plot the indicator on your chart, you are looking at the difference between two simple moving averages: the 5-period SMA and the 34-period SMA plotted over midpoint (median) prices.
Key point: The Awesome Oscillator plots the difference between the 5-period and 34-period SMAs of midpoint prices.
Here is how the Awesome Oscillator indicator is calculated:
That is all there is to it. But you do not need to worry about even this simple math, as your trading platform will handle it for you.
Key point: The AO is calculated using the moving averages of the bar midpoint values.
This indicator displays on your chart as a histogram underneath the price graph. The histogram helps you visualize whether bullish or bearish momentum is at play. Above the zero line, it is bullish. Below the zero line, it is bearish.
Key point: You can visualize bullish and bearish momentum with this indicator.
If you are using MetaTrader 4, it is fast and easy to plot the Awesome Oscillator.
That is all you need to do. You are now ready to start trading using the Awesome Oscillator.
Key point: You can plot the Awesome Oscillator on your Forex chart in a matter of seconds in MT4.
One of the cool things about the Awesome Oscillator indicator is that there are a number of ways you can use it to identify potential Forex trade setups.
The simplest and most straightforward way to use the Awesome Oscillator is to trade crossovers of the zero line.
Twin peaks is so named because the setup entails a pair of peaks forming one after the other. Whether you are looking for the bullish or bearish setup, the two peaks must both be on the same side of the zero line.
This type of setup is the hardest to describe, but it is not complicated once you know what to look for.
Key point: There are multiple ways you can trade using the Awesome Oscillator.
To wrap up our discussion on the AO, here are a few general recommendations to get the most out of this indicator.
Key point: Like any other indicator, the AO needs to be part of a sound, tested strategy to pay off.
The Awesome Oscillator can help you trade in multiple ways. The AO is a versatile indicator that you can put to work in more way than one to help you generate profits in the Forex markets. Just make sure you are aware of its limitations and are looking for confluence through other indicators before you enter your trades.
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