Understanding the Awesome Oscillator (AO) for MetaTrader 5

If you're looking to add a robust indicator to your trading toolkit, the Awesome Oscillator (AO), developed by Bill Williams, is a fantastic choice. This indicator measures market momentum by calculating the difference between a 5-period and a 34-period simple moving average based on the median price of the bars, which is computed as (High + Low) / 2.

The AO provides traders with insightful signals about the current market driving force. If you’re keen to dive deeper into this, check out Bill Williams's book, New Trading Dimensions.

Buy Signals

Here are the main signals to look for when considering a buy:

• Saucer Signal: This signal occurs when the bar chart is above the zero line. Look for three columns: the first column is higher than the second (red), and the third column is higher than the second (green). Remember, all columns must be above the zero line for this signal to be valid.
• Zero Line Crossing: This signal happens when the bar chart crosses from negative to positive. For this signal to trigger, you'll need just two columns: the first below the zero line and the second crossing it.
• Two Pikes Signal: This signal appears when both peaks are below the zero line. The first peak is the lowest (pointing down), followed by a second peak that is slightly higher but still negative. Ensure the bar chart remains below the zero line between these peaks.

Keep in mind, if the bar chart crosses the zero line between the two pikes, you’ll get a zero line crossing signal instead.

Sell Signals

The Awesome Oscillator generates sell signals in a similar manner:

• Saucer Signal: The reverse of the buy signal, where the bar chart is below the zero line.
• Zero Line Crossing: This occurs when the first column is above the zero line while the second is below it, indicating a downward trend.
• Two Pikes Signal: Just like the buy signal, but the peaks are now above the zero line.

Awesome Oscillator Indicator

Calculation

To calculate the AO, you’ll need to determine the median price first:

Where:

• MEDIAN PRICE: The average of the highest and lowest price of the bar.
• HIGH: The highest price in the selected period.
• LOW: The lowest price in the selected period.
• SMA: Simple Moving Average.

Incorporating the Awesome Oscillator into your trading strategy can provide you with a clearer picture of market momentum and help you make more informed decisions. Happy trading!