An Awesome Guide to the Awesome Oscillator

Background

The Awesome Oscillator (AO), as well as its brother Accelerator Oscillator (AC), are two indicators developed by Bill Williams and were mentioned in his book New Trading Dimensions (1998). Although Bill developed it as a way to count Elliot Wave positions in markets, traders can take advantage of these indicators to generate reference signals for them without too much knowledge about the Elliot Wave Theory.

What the indicators are

Both AO and AC were derived from the 5-34-5 MACD on median price. See the charts below:

Compare the two charts above. You may have already figured out that AO is exactly the lines of the MACD, whereas AC is the histogram in the MACD. It was advised that there should be at least 100-140 bars in your charts for proper analysis.

How to use them

Although these two indicators cannot make up a whole trading systems themselves, you may find reliable reference in them if you consider the following entry rules.

There are 3 buy signals by AO (opposite for sell):

Signal 1: Crossing (of the zero line)

Signal 2: Twin Peaks (lowering tops)

Signal 3: Saucer (U-shape rebound)

And these signals MUST be accompanied by the following rules:

1. AC should show the same colour.
2. If (1) is satisfied, only buy when the price breaks through the high of the bar with which the signal is generated.
3. If AC changes colour before entry is done, then the signal is disqualified.

For more information, please read Bill Williams' New Trading Dimensions.

Source of information: http://myblog.marbo.com.tw/win888-jackan/Post/20436