Awesome Oscillator trading strategy: Are you awesome enough?

Time has come to introduce you the Awesome Oscillator indicator. It was invented by Bill Williams who decided to use the median prices instead of using the closing prices like in MACD indicator.

In order to gain a better understanding on how the Awesome Oscillator indicator works, and how to use it properly follow here and learn the top facts about Oscillator’s potential signals and trading strategies.

MACD? Is that you?

Awesome Oscillator was based on the MACD indicator, which is quite similar to this indicator. Awesome oscillator indicator describes the spread between two Simple Moving Average’s that allows understanding the upcoming market direction.

The main point of the Awesome Oscillator is that it’s a signal line of the MACD indicator, but the difference is in the typical prices and different parameters (34 and 5).


The main difference between the Awesome Oscillator indicator and MACD indicator consists in that in MACD indicator, the close prices are applied and the awesome oscillator uses the median prices.

Awesome oscillator – is very useful and flexible indicator of technical analysis that helps traders to estimate the market dynamic and potential points of trend turnings.


Calculation procedure

The method of the calculation of the Awesome Oscillator is very simple – it is 34-period simple moving average, developed on central meanings of bars (H+L)/2, subtracted from 5-period simple moving average which is based on central points (H+L)/2.

AO = SMA (Median Price,5) – SMA (Median Price, 34)

Median Price = (High + Low)/2, where:

High – maximum price of the bar

Low – minimum price of the bar

SMA – simple moving average

Let’s get to backtesting

There are numerous signals the Awesome Oscillator can provide (the most used one are “Breakthrough of the zero level”, “Saucer”, “Divergence”, “Two peaks”), today we are going to test the trading strategy based at “Breakthrough of the zero level” signals.

The “Buy” signal appears when the histogram turns from negative meanings to positive.

To create the “Buy” signal:

  • The first bar green bar must be under the zero level; second one must cross the zero level (conversion from negative meanings to positive);
  • We enter the trade at the second bar after the intersection of the zero line;
  • We exit the trade when the first red bar appears.

To create the “Sell” signal:

  • The first bar red bar must be above the zero level; second one must cross the zero level (conversion from positive meanings to negative);
  • We enter the trade at the second bar after the intersection of the zero line;
  • We exit the trade when the first green bar appears.

We have tested the Awesome Oscillator indicator strategy (particularly the breakthrough of the zero level type) on Bullish, Bearish and Flat markets: on two periods of time each.

Reminder: We’ve tested the Awesome Oscillator strategy on 3 types of markets and 6 periods of time totally to get authentic results as much as possible. Check here what we take as the base of our backtesting experiment: 5-Step backtesting method.

Please, also note: we cannot guarantee the ideal performance of the strategy during the live trading even if it turned out to be profitable during the backtesting.

The backtesting gives you the statistically proven confidence in your trading decisions to some extent. However, we sincerely believe that without it trading becomes a synonym of the gambling or a lucky wild guess.

Please, keep in mind that you use the backtested strategy on a live trading account at your own risk.


Periods of time
Market Training set Forward set
Bull 01/03/2011 - 23/06/2011 09/06/2010 – 10/08/2010
Bear 01/01/15 - 27/03/2015 01/09/2014 - 27/10/2014
Flat 01/09/2016 – 08/02/2017 04/05/2015 – 12/06/2015

Technical information:

  1. Currency pair – EUR/USD
  2. Time frame - 1 hour
  3. Spread meaning – 5
  4. Stop Loss/Take Profit: we do not use in this strategy.

Awesome oscillator strategy: long trade set up
Awesome oscillator strategy: short trade set up

Backtesting Results

As you can see on the table below the Forward testing set helps us to understand the stability and utility of using the Awesome Oscillator.

Just take a look on the results in table below:

Market Training set Forward testing
Bull +153 pips -215 pips
Bear +249 pips +59 pips
Flat +121 pips +121 pips

Conclusions

As we can see the Awesome Oscillator indicator is a great tool to understand the up-coming market direction.

Our purpose in testing the Awesome Oscillator was to show you the importance of this indicator and as you can see the results speak for themselves.

The Awesome Oscillator strategy showed the best results on the Flat and Bearish markets. The testing of this strategy during the Training set and Forward set on the Flat market ended up with profitable result. So under given conditions we can recommend using this strategy on these types of market.

Due to the results of backtesting of Awesome Oscillator strategy on Bullish market we cannot recommend using it on this type of market because of the loss in 215 pips.


As you can see the Awesome Oscillator can be quite useful and can improve your way trading if you know how to use it properly of course.

Don't forget that you can use the Awesome Oscillator strategy as you want it, with your data meanings, market type, periods of time, currency pair and etc.

Feel free to try the Awesome Oscillator strategy in that way which is suitable for you. It can be not only the “Zero level cross”, but the “Saucer” or the “Two peaks”.


Do you wonder how the Awesome Oscillator “behaves” together with other indicators?

Check here the backtesting results for Awesome Oscillator and Bollinger Bands trading strategy and RSI and Awesome Oscillator trading strategy.

Have you ever tried to trade with Awesome Oscillator? What were the results? Please share your results and your thoughts with us.

Try It Yourself

As you can see, backtesting is quite simple activity in case if you have the right backtesting tools.

The testing of this strategy was arranged in Forex Tester with the historical data that comes along with the program.

To check this (or any other) strategy’s performance you can download Forex Tester 3 for free. In addition, you will receive 19 years of free historical data (easily downloadable straight from the software).



What is your favorite indicator?
MACD
Stochastic
Ichimoku
RSI
Moving Average
Heiken Ashi
Renko bars
Other
doriddles