Awesome Oscillator indicator, it's calculation and usage

Considering the current market movement, everyone is panicking and a lot have also chatted me asking if the Crypto world is coming to an end. In most cases when I see these messages I smile 😊 because overtime I have seen even worse things than these.

So I always encourage them to leave the market for the time being. If you can't control your emotions, I don't recommend you trading at this moment because there are many uncertainty in the market and if not careful fear and greed will make you lose all your money.

It is on this note that I decided to bring to the notice of the public especially those who wish to continue trading this very unique indicator which has proven overtime to be very reliable. So if you must continue trading at this period of uncertainty then you need to know more about the awesome Oscillator indicator.

So in this article today, we are going to look at the history, calculation and the use case of this indicator. We are doing this so that your faith will be built stronger when you apply it on your chart. Since the calculation is mathematical proven it gives you more confidence on the outcome of the result generated by the indicator. Without further ado let's get started.

History and Overview of the Indicator

The Awesome Oscillator indicator is a momentum and a trend based indicator which was developed by Bill Williams in forex, stock or commodities as well as crypto market. When you apply this indicator, what you will look out for is the possible reverse, trend continuation of the asset and that is the reason it is called trend based indicator.

As you may have known, every successful trader today trades in the direction of the trend. So if yo are a counter trader then I bet you, you will never stay long in the market because often you will always be kicked out. So to avoid being kicked out of the market you must always trade in the direction of the trend and the awesome Oscillator indicator is there to help you do that.

This indicator is made up 3 components i.e the green bars, the center line and the red bars. The center line is always the 0 line and when the market moves above it, it becomes a bullish market and when the market moves below it it becomes a bearish market. This means that anything above 0 is an uptrend market and anything below 0 is a downtrend market.

Formula calculation and how to apply it.

To calculate the Awesome Oscillator (AO) you will need the follow the steps below.

First you need to get the SMA5 and SMA34 because they are the two things that wen you subtract will have you the current awesome Oscillator and if it is above 0 you will know that the trend is uptrend and if it is below 0 you will know that the trend is a downtrend.

SMA5 = (High + Low + Close) / 3, averaged over 5 periods

SMA34 = (High + Low + Close) / 3, averaged over 34 periods

AO = SMA5 - SMA34

Let's look at an example below 👇

Period	High	Low	Close	SMA5	SMA34	AO
1	105	95	100	100	-	-
2	110	103	107	106.6	-	-
3	115	113	114	..	-	-
4	120	118	119	...	...	...
5	125	123	124	..	...	...
...	...	...	...	...	...	...
34	145	140	143	...	...
35	147	144	146	145.6	...

Solution

From the formula above, you will expected to calculate the SMA5 for each period i.e.,

Period 1 : SMA5 = (High + Low + Close) / 3, averaged over 5 periods

Period 1: SMA5 = (105 + 95 + 100 ) / 3

Period 1: SMA5 = 100

Period 2: SMA5 = (High + Low + Close) / 3, averaged over 5 periods

Period 2: SMA5 = (110 + 103 + 107 ) / 3

Period 2: SMA5 = 106.6

And so on until you get the last which is period 35

Period 35: SMA5 = (High + Low + Close) / 3, averaged over 5 periods

Period 35: SMA5 = (147 + 144 + 146 ) / 3

Period 35: SMA5 = 145.6

Secondly, From the formula above, you will expected to calculate the SMA34 for each period i.e.,

Period 34: SMA34 = (High + Low + Close) / 3, averaged over 34 periods and then divide the result by 3 and after getting your result you have to divide it by 34. It's a long calculation but I just want you to have a clue on it.

Why using the SMA5 and the SMA34 for the calculation?

Bill Williams aim is to use two moving average i.e., a fast moving avearage 5 and a much slower moving average 34 to filter out fake signal movement. So these two periods where chosen by the author to enable him minimize loss and maximise profit. Though it can be adjusted to suit a traders pattern of trading.

The SMA5 is a fast moving average which carries a lot of noise so to be on a safer side, the author of the indicator combined it with SMA34 which is a slow moving average. Both of these work to provide the user a better signal. So it automatically does the calculation and when the result is above zero it indicates that the trend is uptrend but when seen below 0 it is a downtrend.

Conclusion

The awesome Oscillator indicator is a trend based indicator which tells the trader the direction of the market at any point and time. It is made up of a slow moving average SMA34 and a fast moving average SMA5 which are both use in the calculation. So if you want to trade with the trend then this indicator is an ideal indicator for you.

Finally, I want to thank you all for reading through my post today. If you have any questions or contributions, please do well to use the comment section of this post. See you all in my next publication.

Disclaimer: ^{This post is made as an education and not investment advice. Digital asset prices are subject to change. All forms of crypto investment have a high risk. I am not a financial advisor, before jumping to any conclusions in this matter please do your research and consult a financial advisor.}

NB: All images except otherwise stated are mine and taken from the TradingView.