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Awesome Oscillator, developed by Bill Williams, is a momentum indicator measuring market momentum by calculating difference between 5-period and 34-period simple moving averages. AO displays as histogram, green bars indicate rising momentum, red bars indicate falling momentum.
AO = SMA(Median Price, 5) - SMA(Median Price, 34) Where: Median Price = (High + Low) / 2 SMA(5) = 5-period simple moving average SMA(34) = 34-period simple moving average Histogram color: Green: AO(current) > AO(previous) Red: AO(current) < AO(previous)
Standard AO (5, 34): Bill Williams original parameters
Adjusted AO: Periods adjusted for different markets and timeframes
AO Divergence: Price and AO move in opposite directions, signals trend reversal
AO Patterns: Twin peaks, saucer, and other specific patterns
Zero Line Cross: AO crossing above zero is buy signal, below is sell signal
Twin Peaks: AO forms two peaks above zero line, second peak higher but doesn't cross zero, buy signal
Saucer: AO above zero line, three consecutive bars change (red-red-green or red-green-green), buy signal
Bearish Divergence: Price makes new high but AO doesn't, signals weakening upward momentum
Bullish Divergence: Price makes new low but AO doesn't, signals weakening downward momentum
Histogram Color Change: Red to green indicates momentum turning bullish, green to red indicates turning bearish
Awesome Oscillator is core component of Bill Williams trading system, typically used with Alligator indicator and Fractals. AO zero line crossovers are important trend signals but may generate false signals in ranging markets. Twin peaks and saucer signals are AO-specific pattern signals with higher reliability. AO divergence is powerful reversal signal, especially when occurring near key support/resistance. Many traders combine AO with other momentum indicators to improve signal accuracy.
Visually intuitive, provides multiple trading signals, strong divergence prediction capability, part of complete trading system, applicable to all markets and timeframes
Prone to false signals in ranging markets, significant lag, requires learning specific pattern signals, best used with other Bill Williams indicators
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