Bill Williams introduced the Awesome Oscillator. In his book the financial genius called the AO “the best momentum indicator available in the stock and commodity markets” for simplicity and elegance. Basically, it is a 34-bar simple moving average subtracted from a 5-bar simple moving average. It can be applied across different markets; be it stocks, commodities, indices, and currencies.
Only experienced traders know that there is a huge profit potential in trend reversals while beginners are scared of sudden changes in market. However, when you trade in binary options your profit or loss is does not depend on the points of the price. It depends on whether you predicted the trend correctly. Binary options depend on the outcome of a “yes or no” proposition, hence the name “binary”. The gain or loss on the trade is automatically credited or debited to the trader’s account when the option expires. Traders receive a payout if the binary option expires in the money and incur a loss if it expires out of the money.
Traders rely on the Awesome Oscillator to predict trend reversals. If you trade in Pocket Option trading terminal you can find the AO among standard indicators. To install it find it on the list and click “+”.
About the Awesome Oscillator and settings
The oscillator received the name “Awesome” because what it can do is a miracle. Bill Williams wrote that it is the best oscillator he ever invented. He also introduced such indicators as Alligator, Accelerator, Percent Range, Fractals and many others.
Like most oscillators, Awesome Oscillator is displayed in a separate window under the price chart. It looks like a histogram located on both sides of the zero level.
In simple words, AO looks at the last five bars in comparison with the wider time frame of the previous 34 bars. The value of the Awesome Oscillator indicator is calculated as the difference between moving averages over these two time frames. Rather than using closing prices, though, these simple moving averages use the midpoints of the bars (i.e. halfway between the high and the low).
If you trade in the Pocket Option terminal and you want to change the settings, you need to go to the Indicators/Active menu, then select Awesome Oscillator and click on the pencil icon.
When you tune the settings and see that everything is working, you can apply it in your binary options trading strategy.
How to apply Awesome Oscillator in Trading Strategy?
The awesome oscillator will fluctuate between positive and negative territory. A positive reading means the fast period is greater than the slow and conversely, a negative is when the fast is less than the slow.
The AO histogram crossing above the zero line indicates bullish momentum. Conversely, when it crosses below, it is indicative of bearish momentum.
When you trade in your terminal, you can see the signal of a trend change in color in the Awesome Oscillator.
Generally speaking, the basic rules are as follows:
- The CALL option when the histogram moves from the bottom to the top with a new bar formed above the zero.
- The PUT option when the histogram moves to the lower part and a bar formed below the zero level.
The Awesome Oscillator works with any timeframes. It is also good for turbo options however you will get a lot of false readings during a choppy market.
The recommended expiration period should be more than the time of formation of two candles.
Awesome Oscillator can predict divergence and should be used as an additional signal for opening a transaction. However, you as a trader need to be prepared for the harsh reality of trading. Beginning traders should read more about the AO indicator altogether and prepare to combine the AO with other indicators. Find out for yourself if you understand the AO and give a try to a demo account with the Pocket Option.