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Awesome Oscillator

SPCFD:SPX   S&P 500 Index
The Awesome Oscillator (AO) is displayed as a histogram showing the market momentum based on a comparison of the simple moving average ( SMA ) of the last 5 price bars median to the simple moving average of the last 34 price bars median.

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

When the momentum of the past 5 bars is weak compared to that of the 34 bar period, the AO displays this shift as a red bar. When the recent 5 bar momentum is stronger, the AO displays the shift as a green bar. The AO displays these shifts by a series of red and green bars. Series of red bars indicate declining bias. Series of green bars indicates rising bias.

Related to the AO are Zero Line Cross Over, Twin Peaks Patterns, and Price/Momentum Divergence. When the AO is added to other technical indicators, such as Divergent Bars and Bollinger Bands , traders are able to assess which way a stock is likely to move. The AO can help see what is coming!

Zero Line Cross Over
When the AO crosses over the zero line, moving from above the zero line to below the zero line, this is a declining bias indicator. A rising bias is indicated when the AO crosses over the zero line, moving from below to above.

Twin Peaks
The Twin Peaks pattern indicates a declining bias when the AO forms a series of green and red bars where each transition from green to red (a peak) is smaller than the previous peak.

A rising bias is indicated when the AO forms a series of green and red bars where each transition from green to red (a peak) is larger than the previous peak.

Price/Momentum Divergence
Declining Bias - When the AO shows declining momentum and, during the same time period the price of the stock is showing a rising trend (higher highs and higher lows), there is divergence that is forecasting an eventual decline in the price. When momentum weakens, price may still rise for a period however, without momentum the price will snap back because there is not enough buying volume to maintain the upward price momentum. Imagine a rubber band stretched between the two ends of the “V” formed by the two trend lines .

In the chart example above, you can see the strong divergence between rising price and declining momentum. The price ended up snapping back in line with the AO and then continued to move lower.

Rising Bias - When the AO shows rising momentum and, during the same time period the price of the stock is showing a declining trend (lower lows and lower highs), there is divergence that is forecasting an eventual rise in the price of the stock. When momentum strengthens, price may still decline for a period however, eventually increasing momentum will push the price higher.

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Comments

seems like there is a divergence over the last two movements
+3 Reply
Thanks for this. Could you recommend other indicators you think work well with the AO? I'm currently using the AO with RSI and MACD.
+1 Reply
NewCycleTrading Madcaptains
@Madcaptains, RSI and MACD are great. Stochastics and Bollinger Bands are other indicators that work well with the AO.
Reply
Madcaptains NewCycleTrading
@NewCycleTrading, Thank you! I appreciate.
Reply
Zero line crossovers and Twin Peaks are great tools, but AO divergence I think gives a lot of false signals. Rather, you should look for RSI or CCI divergence.
Reply
@peakbroker, Divergence by itself is not something considered to be a primary entry signal. AO divergence is something that is used to view a consensus of the directional bias. When you have divergence in addition to other indicators all aligning in the same direction, it adds confidence to taking the trade.
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hoho,itseems fun
Reply
Does 'Squeeze momentum' indicator compete with AO?
Reply
NewCycleTrading homotradeus
@homotradeus, I am not as familiar with the Squeeze momentum indicator however, the AO has been a part of my technical indicator set for over 20 years and I find it to be an excellent indication of direction and momentum. Since AO is encouraged to be used with other indicators, such as Stochastics, Divergent Bars, and Bollinger Bands, you could evaluate using it alongside the Squeeze momentum indicator. I would still add in additional indicators since the AO is a momentum indicator and the Squeeze momentum is another momentum indicator. You would want to factor in non-momentum indicators to evaluate the strength of the entries.
Reply
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