How To Use The Awesome Oscillator To Spot Early Moves

The Awesome oscillator is more than just bar color flipping back and forth. It shows the pace of the move and helps you spot whether short-term traders are pushing harder than the longer trend allows. What makes it work is how clearly it shows shifts in control without needing extra indicators. Most people jump into the move too late when the bars flip across the zero line. But the real clue comes from how fast the bars grow and how deep they pull back before the flip. That is where you get a read on the market’s mood before it makes a visible move. In this article, we will take a detailed look into the Awesome oscillator, talking about its origin, calculation, strategies, and important tips.

Introduction to Awesome oscillator

The Awesome oscillator is a momentum-based technical indicator that shows you whether the market is currently bullish or bearish. It does this by comparing short-term and long-term market momentum. Instead of following price alone, it looks at how quickly price is moving and whether that pace is building up or slowing down.

This tool appears as a histogram of green and red bars that move above and below a zero line. Green bars show increasing momentum, while red bars show momentum fading. The Awesome oscillator helps traders confirm trends, spot reversals, and avoid jumping into weak trades.

What the Awesome oscillator helps with

• Confirms if a trend has strength behind it.
• Signals early reversals with momentum shifts.
• Helps identify trade setups based on color and bar position.
• Can be combined with support and resistance for more precise entries.

Origin and development of Awesome oscillator

The Awesome oscillator was developed by Bill Williams, the same trader behind other indicators like the alligator and the market facilitation index. He introduced it as part of his system for reading the market’s momentum and structure, rather than just relying on price action.

Why it was created

• Williams wanted a tool that measured market momentum across multiple timeframes.
• He designed it to compare a 5-period and 34-period simple moving average (SMA), calculated from the median price instead of the close.
• The oscillator helps traders spot when momentum is rising or falling – even if price is not clearly trending.

How it became popular

• It was first introduced in Bill Williams’ books Trading Chaos and New Trading Dimensions.
• Traders started using it across different markets, especially stocks, commodities, and indices.
• It gained attention for being visual, easy to read, and effective for trend confirmation.

Why it’s still used

• Works well in trending and ranging markets.
• Helps simplify momentum reading without overloading the chart.
• Its visual format (green and red bars) makes it accessible to both new and experienced traders.

Understanding the components of Awesome oscillator

The Awesome oscillator is made up of just a few simple parts, but together they give powerful insight into momentum. It measures the difference between two moving averages and plots the result as green and red bars on a histogram. These bars help traders see whether momentum is building up or slowing down – without needing to interpret complex formulas.

The core formula

At the heart of the Awesome oscillator is a comparison between two simple moving averages (SMAs), calculated from the median price, not the closing price.

Median price = (High + Low) ÷ 2

Awesome oscillator = 5-period SMA − 34-period SMA (of the median price)

• When the 5-period SMA is greater than the 34-period SMA, the histogram is above zero (bullish momentum).
• When the 5-period SMA is less than the 34-period SMA, the histogram is below zero (bearish momentum).

What the colors mean

The histogram bars change color based on whether the value is rising or falling.

• Green bar
  The current bar is higher than the previous one. This signals that momentum is increasing in the current direction.
• Red bar
  The current bar is lower than the previous one. This shows that momentum is weakening, even if price is still moving in the same direction.

Interpreting the zero line

The zero line acts as a midpoint. When the bars cross this line, it may suggest a shift in control between buyers and sellers.

• A cross above the zero line signals potential bullish momentum.
• A cross below the zero line points to possible bearish momentum.

Trading strategies using Awesome oscillator

The Awesome oscillator is especially useful for trend confirmation and catching early signs of reversals. Because it shows momentum visually with green and red bars, it’s easy to read and apply in real trades. Here are some of the best trading strategies using the Awesome oscillator:

Zero line crossover strategy

This is one of the simplest ways to use the Awesome oscillator. It signals a shift in momentum as the bars cross the center line.

How to apply it

• If the histogram moves above zero, it suggests bullish momentum.
• If it drops below zero, it points to bearish momentum.
• Use this as a confirmation tool after a breakout or trendline break.
• Combine it with support or resistance levels for better entries.

Why it works

• Helps you follow momentum instead of fighting it.
• Adds confidence to breakout trades.
• Avoids entering during unclear moves.

Twin peaks strategy

This setup looks for two peaks (or valleys) in the histogram to spot potential reversals before price reacts.

How to apply it

• For a bullish signal, look for two red peaks below zero where the second is smaller and followed by a green bar.
• For a bearish signal, look for two green peaks above zero with the second one lower, followed by a red bar.
• This pattern often shows fading strength before a turn.

Why it works

• Catches signs that the current trend is losing steam.
• Helps time early entries or plan for a shift.
• Useful in both trending and ranging markets.

Saucer strategy

This strategy helps spot short pauses in the trend before momentum picks up again.

How to apply it

• In a bullish setup, look for three bars above zero: two red bars followed by a green one.
• In a bearish setup, look for three bars below zero: two green bars followed by a red one.
• Enter in the direction of the new bar if it confirms the trend’s continuation.

Why it works

• Helps you enter a trend after a quick pullback.
• Adds structure to momentum-based trades.
• Works well with moving average support or resistance.

Divergence strategy

Use the Awesome oscillator to spot divergence between price and momentum.

How to apply it

• If price makes a new high but the oscillator forms a lower high, that’s bearish divergence.
• If price makes a new low but the oscillator forms a higher low, that’s bullish divergence.
• Wait for the bars to confirm a change before entering.

Why it works

• Gives early signs of a possible reversal.
• Useful at key support and resistance areas.
• Adds an extra layer of confirmation to your setup.

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Conclusion

The Awesome Oscillator stands out as a powerful, visually intuitive tool for traders aiming to spot shifts in market momentum before major price reactions take place. By prioritizing both the color and the size of the histogram bars—rather than relying solely on zero-line crossovers—traders can detect early signs of trend changes or continuation, such as momentum surging before a breakout or fading ahead of a reversal. For example, using the twin peaks or saucer strategies allows you to catch moves while others are still waiting for obvious price signals. Ultimately, mastering the Awesome Oscillator means reading between the lines of momentum, giving you the edge to act confidently when the market’s true tempo reveals itself.