What is the Awesome Oscillator (AO)?
The Awesome Oscillator (AO) is a technical analysis tool used in trading. It’s kind of like a weather report for the market: it doesn’t tell you exactly what will happen, but it can give you a sense of the overall “climate” and potential trends.
Here’s how it works in simple terms:
Calculating the AO: Think of a line graph where the horizontal line (x-axis) represents time, and the vertical line (y-axis) represents the price. In trading, you would see “candlesticks” on this graph, representing price changes over specific periods. For each candlestick, there’s a midpoint price, which is the average of the high and low prices during that period.
The AO is calculated by subtracting the average midpoint price from 5 periods ago from the average midpoint price from 34 periods ago. So, if we were talking about days, you’d take the average midpoint price from the past 5 days and subtract it from the average midpoint price from the past 34 days.
What it tells you: The Awesome Oscillator gives a value that helps predict whether prices might go up or down.
- If the AO is above zero, it’s generally seen as a bullish (upward) signal. This could mean prices might increase.
- If the AO is below zero, it’s usually seen as a bearish (downward) signal. This might mean prices could go down.
Reading the Awesome Oscillator: You can look for two key patterns in the AO:
- “Zero Line Crosses”: This is when the AO line crosses the zero line. If it crosses from below to above, that’s usually seen as a buy signal. If it crosses from above to below, that’s often viewed as a sell signal.
- “Twin Peaks”: This is when the AO forms two peaks, with the second peak lower than the first. If the AO then crosses below zero, it’s typically seen as a sell signal. If the AO forms two valleys (opposite of peaks), with the second valley higher than the first, and then crosses above zero, it’s usually taken as a buy signal.
More about the Awesome Oscillator.