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Check out the new article: MQL5 Wizard Techniques you should know (Part 50): Awesome Oscillator.
The Awesome Oscillator is another Bill Williams Indicator that is used to measure momentum. It can generate multiple signals, and therefore we review these on a pattern basis, as in prior articles, by capitalizing on the MQL5 wizard classes and assembly.
The AO is displayed as an oscillating histogram, above and below the zero-line, which zero-line serves as a marker for no momentum, with a crossing above or below suggesting a potential trend shift. The green-bars on the histogram represent increasing bullish momentum from the previous price bar, while red-bars mark increasing bearish momentum also from the prior bar. Also, as a general overview rule, when histogram bars are above the zero-line this often suggests that a bullish trend is prevalent while if the same histogram bars (again regardless of colour per se) are mirrored on the other side of the zero-line this implies prevalent bearish momentum.
Why the name ‘Awesome’? Well, there isn’t a concise answer, or authoritative source to direct the question to; however, it is argued AO simplifies complicated momentum calculations into a simple visual indicator. By having a dual focus on fast-paced and ‘long-term’ SMAs, it helps traders get a relative sense of both short-term and long-term market dynamics. It is highly versatile, functioning well in trend-following and reversal strategies. Its practical applications are mostly with helping trades align with prevailing market momentum. It can provide potential entry and exit points as we cover below with a variety of signal-patterns, and it can also be useful in divergence analysis which we also exploit is the signal-patterns we consider below.
Despite its many signal-patterns and potential uses, it also has some inherent limitations. Like many oscillators, AO can produce false signals in range-bound or choppy markets a trait which unfortunately means it may work best when combined with other indicators in order to have a broader more comprehensive strategy.
Author: Stephen Njuki