Technical analysis is one of the fundamental pillars within our trading training. This type of analysis based on reading the movements of an asset on a graph allows us to anticipate the next steps that said asset may take. Actually, technical indicators are really amazing, since they make it easier for us to interpret the technical analysis that we carry out when predicting movements. And speaking of amazing, in today's trading training we are going to show you how the amazing oscillator works.
What is the Awesome Oscillator?
Let's start the trading training by explaining what this indicator is about. The amazing oscillator (like all oscillators, but this one in particular is called that) is an indicator from the oscillator family that allows us to measure the strength of the impulses of a trend, whether bullish or bearish. This indicator was designed by the renowned analyst Bill williams, creator of other indicators such as the Alligator indicator or the acceleration oscillator. This indicator may have a certain resemblance to other indicators that we have shown you in the series of trading training articles, since, as you will see below, it bears a certain resemblance in appearance. Its usefulness lies in measuring the strength of the momentum of a trend, as well as defining the trend itself.
How is the amazing oscillator measured?
Let's now see how this indicator is measured to understand in depth how it works. As we have commented in the previous paragraph of this trading formation, the amazing oscillator bears a certain resemblance in its appearance to other indicators, such as the MACD histogram or the Elder Ray, although only for appearance, given that the calculation of this indicator is totally different.
The amazing oscillator is made up of a two-color histogram; the green (oscillator value less than the previous bar) and the green (oscillator value greater than the previous bar). This histogram represents the oscillations made by the indicator, with the central zero line being the neutral point. Unlike other oscillator indicators that develop their movement on two values, the amazing oscillator has no defined limits.
How is the amazing oscillator calculated?燐
The Amazing Oscillator is composed of a 5-period Simple Moving Average (SMA) and subtracts this with a 34-period Simple Moving Average (SMA). The value of this calculation reflects the difference present between the SMAs (a short period versus a longer period one). The curious (or amazing) thing about this oscillator is that it does not use the usual OHLC parameters (opening, closing, minimum or maximum). In the case of this oscillator, the average of the candles of said periods is used. Therefore:
First, we calculate the media from both periods.
Average SMA = (High+Low) / 2
Next, the calculation of the 34 period SMA of the calculation of the 5 period SMA.
Amazing Oscillator Value = (SMA 5 – SMA 34) Now we know the calculation formula for the amazing oscillator but we still have to find out how the histogram bars are formed. We have seen that it has two colors that represent whether the value of the oscillator is greater or less than the previous bar calculation. These values can be above zero (confirming bullish trend) or below zero (confirming bearish trend). Therefore, if we see the ascending green histogram, it confirms that the oscillator values are higher than the previous bars. On the other hand, if we see the descending red histogram, it confirms that the oscillator values are lower than the previous bars.
How can we take advantage of the Awesome Oscillator for our trading education?
Now that we have seen what this indicator is, how it is measured and its calculation formula, let's follow the trading training to see how to interpret it. As we have mentioned, the indicator is an oscillator that allows us to measure trend impulses and their strength. Let's look at different strategies to take advantage of this oscillator:
Neutral point crossing strategy (zero line).0️⃣
This strategy to take advantage of the amazing oscillator is the easiest to use this indicator. As we have explained in the previous paragraph of this trading training, when the values are above zero they confirm an upward trend. On the other hand, values below zero confirm a downward trend. So, we can take advantage of these two types of signals to go long (above zero) or go short (below zero).
Saucer strategy.
The next strategy that we will teach you to use the amazing oscillator is the saucer. This strategy is based on the observation of reversals in impulses. It is made up of a pattern of three bars that must be on the same side of the neutral point. To detect a bullish reversal, the oscillator must be above zero and have formed two consecutive red descending bars. Next, if we detect that the third bar is green and higher than the second bar, we can take advantage of it to open a long position on the next bar.
Twin Peaks Strategy.
The third and last strategy that we will teach you to take advantage of the amazing oscillator is twin peaks. As its name indicates, this strategy is based on looking for two peaks in the oscillator that are on the same side with respect to the neutral point. Therefore, to detect buy signals, we must observe two peaks that are below the neutral point, where the second peak forms an ascending pattern between the two. Additionally, we can interpret as a confirmation of this pattern if the next bar that forms after the peaks is green.
