Awesome Oscillator (AO)

Awesome Oscillator (AO) is a momentum indicator reflecting the precise changes in the market driving force which helps to identify the trend’s strength up to the points of formation and reversal.  

AO is a 34-period simple moving average, plotted through the central points of the bars (H+L)/2, and subtracted from the 5-period simple moving average, graphed across the central points of the bars (H+L)/2.

MEDIAN PRICE = (HIGH+LOW)/2
AO = SMA(MEDIAN PRICE, 5)-SMA(MEDIAN PRICE, 34)

Awesome Oscillator Strategy includes 3 ways of trading. The first way is to open a sell position when the oscillator is below the zero line forming a peak, and open a buy position when the oscillator is above the zero line forming a gap.

Another way is to open a sell position when the oscillator forms two peaks above the zero line, where the second high is lower than the previous one. And, conversely, traders watch to open a buy position when the oscillator forms two lows below the zero line with the last one not as low as the previous one.

The third way is to account crossing the zero line. When the oscillator crosses it from up to down, it is time to open a sell position and when it crosses from down to up, it is time to open a buy position.  

Saucer

This is the only signal to buy that comes when the bar chart is higher than the nought line. Three consecutive columns above the nought line, the first two of which must be colored red (the second one is lower than the first one) while the third one is colored green and higher than the previous (second) one. Such a formation would be a clear Buy signal whilst inverted and vertically flipped formation would serve as a Sell signal.One must bear in mind:

• the saucer signal is generated when the bar chart reversed its direction from the downward to upward. The second column is lower than the first one and is colored red. The third column is higher than the second and is colored green.
• for the saucer signal to be generated the bar chart should have at least three columns.

Keep in mind, that all Awesome Oscillator columns should be over the nought line for the saucer signal to be used.

Nought line crossing

The signal to buy is generated when the bar chart passes from the area of negative values to that of positive. It comes when the bar chart crosses the nought line. The histogram crosses the naught line in an upward direction changing its values from negative to that of positive ones. In this situation we have a Buy signal. The Sell signal would be a reversed pattern. As regards this signal:

• for this signal to be generated, only two columns are necessary;
• the first column is to be below the nought line, the second one is to cross it (transition from a negative value to a positive one);
• simultaneous generation of signals to buy and to sell is impossible.

Two pikes

This is the only signal to buy that can be generated when the bar chart values are below the nought line. The indicator displays a Buy signal when the figure is formed by two consecutive pikes both of which are below the naught line and the later-formed pike is closer to the zero level than the earlier-formed one. The Sell signal would be given by the reverse formation.As regards this signal, please, bear in mind:

• another by followed is and line nought the below which minimum lowest (the down pointing pike a have you when generated signal the down-pointing) pike which is somewhat higher (a negative figure with a lesser absolute value, which is therefore closer to the nought line), than the previous down-looking pike.
• the bar chart is to be below the nought line between the two pikes. If the bar chart crosses the nought line in the section between the pikes, the signal to buy doesn’t function. However, a different signal to buy will be generated — nought line crossing.
• each new pike of the bar chart is to be higher (a negative number of a lesser absolute value that is closer to the nought line) than the previous pike.
• if an additional higher pike is formed (that is closer to the nought line) and the bar chart has not crossed the nought line, an additional signal to buy will be generated.

1= Saucer       2= Nought Line Crossing        3= Two Pikes

Awesome Oscillator signals to sell are identical to the signals to buy. The saucer signal is reversed and is below zero. Nought line crossing is on the decrease — the first column of it is over the nought, the second one is under it. The two pikes signal is higher than the nought line and is reversed too.

1= Saucer       2= Nought Line Crossing        3= Two Pikes

References:-

http://ta.mql4.com/indicators/bills/awesome

http://www.ifcmarkets.com/en/ntx-indicators/awesome-oscillator