Awesome Oscillator, the name alone sounds powerful, doesn’t it? 

If you have ever wondered how traders spot market momentum and find hidden opportunities before they vanish, then this tool might be the answer. 

But what exactly makes it “awesome”? Is it some formula that predicts price movements with 100% accuracy? Or is it just another colorful indicator on a Forex chart?

Before you jump to conclusions, let’s understand how the Awesome Oscillator (AO) can help traders make smarter decisions, identify strong trends, and avoid costly mistakes. 

But how does it work, and why do experienced Forex traders rely on it? Let’s begin.

What is the Awesome Oscillator in Forex?

The Awesome Oscillator (AO) is a popular technical indicator used in Forex trading to analyze market trends and momentum.

It was developed by Bill Williams, a famous trader and technical analyst. This indicator helps traders determine if the market is bullish (going up) or bearish (going down), making it easier to decide when to enter or exit a trade.

The Awesome Oscillator is displayed as a histogram (a series of bars) on a trading chart. It compares recent market momentum with longer-term momentum to show the strength of a trend. If the AO is above the zero line, it suggests an uptrend; if it’s below, it signals a downtrend.

How Does the Awesome Oscillator Work?

The AO calculates the difference between two simple moving averages:

• 34-period SMA (Simple Moving Average): This tracks long-term market trends.
• 5-period SMA: This tracks short-term market trends.

Instead of using closing prices, the Awesome Oscillator calculates these moving averages based on the midpoint of each candlestick (High + Low) / 2. This helps smooth out market noise and gives traders a clearer picture of what’s happening.

How to Use the Awesome Oscillator in Forex Trading

The awesome oscillator helps traders in different ways. Here are the three most common strategies:

1. Zero Line Crossover

This is the simplest way to use the AO.

• When the histogram moves above the zero line, it suggests the market is turning bullish (a buy signal).
• When the histogram moves below the zero line, it suggests the market is turning bearish (a sell signal).

This method is good for identifying trend reversals early, but traders often use other indicators to confirm the signals.

2. Twin Peaks Strategy

This method helps traders confirm a market reversal.

• Bullish Twin Peaks: If two peaks form below the zero line, with the second peak higher than the first, it signals a buying opportunity.
• Bearish Twin Peaks:: If two peaks form above the zero line, with the second peak lower than the first, it signals a sell opportunity.

This strategy is useful for catching strong market movements early.

3. Saucer Strategy

This is a short-term strategy that looks for quick opportunities.

• Bullish Saucer: When the histogram has three bars in a row above the zero line, with the last two bars increasing, it signals a buy.
• Bearish Saucer: When the histogram has three bars in a row below the zero line, with the last two bars decreasing, it signals a sell.

This method is best for traders looking for quick entry and exit points in a trending market.

Pros and Cons of the Awesome Oscillator

Like any Forex indicator, the AO has strengths and weaknesses.

Pros

• Easy to understand, even for beginners.
• Helps identify trend direction and strength.
• Works well with other indicators.
• Useful for both short-term and long-term traders.

Cons

• Can give false signals in choppy or sideways markets.
• Works best when used with other indicators like RSI or MACD.
• May lag behind the market in fast-moving conditions.

Best Settings for the Awesome Oscillator in Forex Trading

The default settings (34-period and 5-period SMAs) work well for most traders. However, you can tweak them based on your trading style:

• Short-term traders: Use smaller periods (e.g., 21 and 3) for faster signals.
• Long-term traders: Stick with the default settings or use larger periods (e.g., 50 and 10) for more reliable signals.

Should You Use the Awesome Oscillator?

The Awesome Oscillator is a tool that can help traders identify market momentum and trend reversals. However, no indicator is perfect. To get the best results, use the AO alongside other technical indicators like moving averages, RSI, or MACD.

If you’re new to Forex trading, start by testing the Awesome Oscillator on a demo account. Learn how it behaves in different market conditions before using it in live trading.