✔️ Information reviewed and updated in November 2023 by Eduardo López
We all want to know information about trends in the stock market, so it is extremely important to identify and understand the operation of different technical indicators such as the Awesome Oscillator that will allow us to better understand the behavior and development of those elements that move the market and its trends. .
Today we will explain what the Awesome oscillator is, what it works for, how to calculate it and why you should implement it. Become an expert in the sector with us.
✨What is the Awesome oscillator?
The Awesome oscillator or the also known Amazing oscillator, is a technical indicator developed by Bill Williams, and its main function is to measure the strength of a stock trend. This indicator is responsible for providing us with information about whether the trend is bullish or bearish.
Another of its functions is to inform whether the financial asset rises or falls more or less quickly. Normally this indicator is made up of red or green bars, which can be above or below the center line, which is also known as the zero line.
✨How is the Awesome oscillator calculated?
Visually speaking the oscillator can have a histogram similarity, however, it is calculated based on two important moving measures. The formula that you should not forget is: AO = MMS of 34 periods (PM) - MMS of 5 periods (PM)
AO: They stand for Awesome Oscillator.
MMS: stands for Simple Moving Average.
PM: Represents the simple moving average.
After performing the operation, we are left to know the reason why some bars are red and others are green. It is red when it is above zero, the bar is smaller or if it is below zero and the bar is larger than the previous one. And it is green when it is above zero and the bar is larger or if it is below zero and the bar is smaller than the previous one.
✨ Why should you implement it?
This indicator like many others has been created to implement together, its creator Bill Williams created it in order to form a trading system. Trading represents a financial exchange between investors, who use different tools that allow them to carry out buying and selling operations of shares, raw materials and currencies.
Another reason why you should use this indicator relates to the three different trading methods based on the signals it provides:
- Based on the zero line crossing pattern: It allows to open a sell position when the oscillator values cross the zero line from top to bottom opens a buy position when the signal crosses the zero line from bottom to top.
- Based on the Double Peaks pattern: Open a sell position when the values of this indicator form two highs above the zero line.
- Based on the Saucer pattern: Here it is recommended to open a sell position if the signal bars are above the zero level.