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The Awesome Oscillator (AO) it is a histogram type indicator, designed to measure the market momentum. It was introduced for the first time by Bill Williams. The intent of this indicator is to show what is happening at the momentum of a currency pair in recent exchanges in the context of a larger time frame. The indicator is used to confirm trends and determine possible reversal points.
The Awesome Oscillator indicator shows below the price line
How does it work?
The idea behind Awesome Oscillator is simple. Basically, the indicator is a mixture of moving averages. A simple moving average with period 34 is subtracted from a simple moving average with period 5. Both lines are constructed through the average points of the bars, taken in place of closing or opening prices.
The stand-alone AO indicator
The values of AO oscillate above and below the zero line. The resulting values are represented as green and red bars. The red color indicates that the bar is lower than the previous one. A green bar is instead higher than the previous one.
How to set up?
Setting the Awesome Oscillator indicator on the IQ Option platform is easy.
Click on the "Indicators" button in the lower left corner of the screen. Then choose Awesome Oscillator from the list of available indicators.
Indicator setting. Step one
Then click on the "Apply" button. The indicator will appear at the bottom of the screen, just below the price chart.
Indicator setting. Step two
The Awesome Oscillator is ready to be used.
How to use Awesome Oscillator
Crossing of the Zero Line
This is the simplest and clearest signal that a trader can get when he uses Awesome Oscillator. When the AO crosses and moves above the zero line, the short term momentum is growing faster than the long term momentum. In this case, the crossing of the zero line can be considered an upside purchase opportunity. When the AO passes below the zero line, the short term momentum is falling faster than the long term momentum. This model is considered by some operators as a downside sales opportunity.
Crossing the bearish and bullish zero line on the AO chart
Twin Peak (Twin Peaks)
Even two consecutive peaks can be considered a trading signal. Twin Peak takes on the role of messengers of an uptrend when 1) both peaks are below the zero line, 2) the second peak is higher than the first and is followed by a green bar, 3) the depression between the two peaks it remains below the zero line.
Twin Peak Diagram
The Twin Peak becomes a sign of an imminent bearish trend when 1) both are above the zero line, 2) the second peak is lower than the first and is followed by a red bar, 3) the depression, in turn, remains at the above the zero line.
Twin Peak Bearish Scheme
Saucer is another signal that can be used to make anticipated trend predictions. It follows the changes in three consecutive bars. When the Awesome oscillator is above the zero line and two consecutive red bars are followed by a green one, the saucer is considered bullish.
Raised Saucer Scheme
When the Awesome oscillator is below the zero line and two consecutive green bars are followed by a red one, the saucer is called bearish.
Bearish Saucer Scheme
The Awesome Oscillator is an indicator of varied and valuable technical analysis, able to help traders to estimate the momentum and possible points of inversion of tendency. However, it should be used with caution and should be verified with other indicators and longer time intervals.
This article does not represent an investment advice. Any reference to past movements or price levels is informative and based on external analyzes, we do not provide any guarantee that such movements or levels may reoccur in the future. In accordance with the requirements set by the European Securities and Markets Authority (ESMA), trading with binary and digital options is only available to customers categorized as professional clients.
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Source: IQOption blog 2018-11-08 13:00:20