If you are a contrarian trader, a high value in the AO may lead you to want to take a trade in the opposite direction of the primary trend. This is where things can get really messy for you as a trader. Even if the AO keeps you on the right side of the trade with a high winning percentage, you only need one trade to get away from you and blow up all of your progress for the month.
I normally markup charts on the blog but in this example, I would like you to identify the three peaks in the AO indicator. As you can see in the chart provided by Tradingsim. In addition, the AO was spiking like crazy and the rally did appear sustainable.
Introduction to using the awesome oscillator
This would have represented a move against us of Now if you are day trading and using a lot of leverage , it goes without saying how much this one trade could hurt your bottom line. So, how to prevent yourself from getting caught in this situation? First, a major expansion of the awesome oscillator indicator in one direction can signal a really strong trend. So, do yourself a favor and do not stand in front of the bull. Secondly, use stops when you are trading. There is no reason you should ever let the market go against you this much. Recently, I have been backing off of the low float stocks , because I am able to scale in with larger size with low volatility plays.
However, I know low float movers is a big deal in the day trading community. This is one of those charts that would have me pulling my hair out. Next, EGY spikes lower giving the impression the stock was going to fill the gap. Wrong again, as EGY only consolidates leaving you with a short position that goes nowhere. Lastly, EGY breaks the morning high all the while displaying a divergence with the awesome oscillator and the price action.
In every instance, the indicator is giving off false signals and leaving you on the wrong side of the trade. You as a trader need to be prepared for the harsh reality of trading low float stocks. These securities will move erratically, with volume and in a very short period of time. In a related article on Stocktwits Blog [4] , see how day trader Dave Kelly describes trading low float stocks and the level of volatility with these securities. Also, lower your expectations about how accurately the oscillator can create price boundaries which a low float will respect. Shifting gears to where the awesome oscillator is likely to give you more consistent signals — the futures markets.
The reason the awesome oscillator indicator works so well with the e-Mini is that the security responds to technical patterns and indicators more consistently due to its lower volatility. Notice how these AO high readings led to minor pullbacks in price. Now, these are not going to make you rich, but you can capitalize on these short-term trends.
There were still a few signals that did not work out, so you will need to keep stops as a part of your trading strategy to make sure your winners are bigger than your losers.
Bill Williams Awesome Oscillator Strategy – Big Profits, Small Losses
So out of the trading strategies detailed in this article, which one works best for your trading style? You may find that you like the idea of drilling into where the awesome oscillator indicator fails to uncover trading opportunities. I think no matter what strategy you lock in on, you will want to make sure you use stops in order to protect your profits. The last point I will leave you with is to look at different types of securities to see which one fits you the best. Want to practice the information from this article? November 9, at am.
Awesome Oscillator Formula - Forex Education
Thanks AL for sharing your insights and analysis reference the awesome oscillator. It was valuable for me and much appreciated. January 7, at am. May 16, at pm. Thank you for this fun to read explanation of the AO. I also like that you show where things can go wrong. Keep making them brokers poor! September 13, at am. I use the AO with the Percent R indicator.
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I also incorporate Moving Averages to show the beginnings of upward or downward trends. Never rely on just one indicator. Here, we explain what the indicator is and some awesome oscillator trading strategies. The awesome oscillator is a market momentum indicator which compares recent market movements to historic market movements. It uses a zero line in the centre, either side of which price movements are plotted according to a comparison of two different moving averages.
Traders can use the information supplied by the awesome oscillator to forecast market momentum and whether the prevailing trend will continue or reverse. If the awesome oscillator is above the zero line, the market is currently bullish but momentum could shift towards being bearish. If the awesome oscillator is below the zero line, then the market is currently bearish but momentum could shift towards being bullish.
The below price graph has an example of the awesome oscillator indicator and how it maps market momentum above and below the zero line. Green bars indicate bullish momentum, while red bars indicate bearish momentum. As with all technical indicators, awesome oscillator signals are no guarantee that a market will behave in a certain way. Because of this, many traders will take steps to manage their risk when trading with the awesome oscillator.
These include using stops and limits on open positions in case a trading signal does not translate to a tangible market movement. The awesome oscillator formula works from a period simple moving average SMA of median prices, which is subtracted from a five-period SMA of median prices. Any time period can be used, from minutes, hours or days — although many traders will use a daily SMA as part of their awesome oscillator trading strategy in order to assess the prevailing trend of a market. Many trading platforms — including the IG trading platform — will plot the awesome oscillator onto a price graph for you at the click of a button.
However, a written form of the awesome oscillator formula can be seen below:. There are several different awesome oscillator trading strategies to choose from, depending on the current market momentum. Each different awesome oscillator strategy seeks to confirm or disprove trends and determine potential reversal points.
In doing so, the awesome oscillator can help a trader to determine when or if they should open a buy or a sell position based on the signals provided by the awesome oscillator. The awesome oscillator saucer is a trading signal that many analysts use to identify potential rapid changes in momentum.
Awesome Oscillator
The saucer strategy involves looking for changes in three consecutive bars that are on the same side of the zero line. Awesome oscillator saucers can be either bullish or bearish.
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A bullish saucer can be identified when the awesome oscillator is above the zero line and there are two consecutive red bars — with the second bar being lower than the first — which are followed by a green bar. On the other hand, a bearish saucer can be identified by two consecutive green bars below the zero line — with the second bar being lower than the first — which are immediately followed by a red bar. Many traders will seek to enter a buy position either during the third bar or in the bar which immediately proceeds the third bar — providing that it is also green.
A lot of traders will use a stop on their position to manage their risk. The awesome oscillator twin peaks strategy can be used on both bullish and bearish markets. A bullish twin peak is when there are two peaks in momentum below the zero line. Some traders believe that a green bar after the second peak — which must be higher than the first peak — signifies that there will be a break above the zero line.