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Awesome Oscillator Technical Indicator (AO) is a 34-period simple moving average, plotted through the middle points of the bars (H+L)/2, which is subtracted from the 5-period simple moving average, built across the central points of the bars (H+L)/2. It shows us quite clearly what’s happening to the market driving force at the present moment.
Signals to buy
Saucer
This is the only signal to buy that comes when the bar chart is higher than the naught line. One must bear in mind:
- the saucer signal is generated when the bar chart reversed its direction from 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 naught line for the saucer signal to be used.
Naught 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 naught line. As regards this signal:
- for this signal to be generated, only two columns are necessary;
- the first column is to be below the naught 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 naught line. As regards this signal, please, bear in mind:
- the signal is generated, when you have a pike pointing down (the lowest minimum) which is below the naught line and is followed by another down-pointing pike which is somewhat higher (a negative figure with a lesser absolute value, which is, therefore, closer to the naught line), than the previous down-looking pike.
- the bar chart is to be below the naught line between the two pikes. If the bar chart crosses the naught line in the section between the pikes, the signal to buy doesn’t function. However, a different signal to buy will be generated — naught 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 naught line) than the previous pike.
- if an additional higher pike is formed (that is closer to the naught line) and the bar chart has not crossed the naught line, an additional signal to buy will be generated.
Signals to sell
Awesome Oscillator signals to sell are identical to the signals to buy. The saucer signal is reversed and is below zero. The naught line crossing is on the decrease — the first column of it is over the naught, the second one is under it. The two-pikes signal is higher than the naught line and is reversed too.
Calculation
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)
Where:
SMA — Simple Moving Average.