Full Review of the Awesome Oscillator Tool for Binary Options Trading
Bill Williams Awesome Oscillator is a trend following momentum indicator with real potential for binary options traders.
What Is The Most Awesome Oscillator?
I ran across the Awesome Oscillator a few weeks ago and was surprised I had not seen it before. It seems to be well know, there was plenty of information about it. I even found a trading service based on Williams 5 step trading system. Williams has done a lot of work in technical analysis chaos theory and oscillators. The indicator is a histogram similar to MACD but with some distinct differences. It is based on the differences in a 34 and a 5 day simple moving average. The SMA is calculated with the midpoint of each days bar. The convergence and divergence of the two moving averages is plotted on the histogram with expanding bars turning green and contracting bars turning red.
The color of the bars is the real difference between this histogram and MACD. With the Awesome oscillator you get a signal when market momentum begins to expand. For example; If the market is in a downtrend and the momentum is getting stronger, the bars of the histogram are getting longer, they are green. When momentum begins to wane and the bars begin to shorten the bars turn red. The Awesome Oscillator provides three main signals, two similar to MACD and one strictly unique to the AO. All the charts I saw were of daily closing but I think this could be applied to different time frames.
In order to add Awesome Oscillator in MetaTrader 4 use the “Insert -> Indicators -> Bill Williams – Awesome Oscillator” menu sequence.
Awesome Oscillator Signals
The first of the three main signals is the zero line cross. This signal had some different names on different sites but all referenced the cross. This is a signal common oscillators especially histograms. Every oscillator has a mid point. Whenever the mid point is crossed it can generate a signal. This is also true of the AO. In a bull trend whenever the histogram crosses the zero line from below it give a buy signal and the reverse is true in a bear trend. This is typically a fairly reliable signal, especially with MACD. I expect this one to work well too but it may take a little practice to employ properly.
The second signal is also similar to MACD and other oscillators. It was called twin peaks or twin tops but was really what I call divergence trading. In a recognized down trend or up trend peaks in the AO can be tracked relative to price. If price makes a new low or high and the AO makes a lower peak then it is creating a divergence. This is a contrary signal and one that should be used with caution.
The final signal recognized by the web sites I saw was called the saucer. The name was fairly constant across the different sites, perhaps because this is the proprietary signal. This signal is based on changes in momentum during a trend and the subsequent changes in histogram color. In practice this signal is very similar to some short term candlestick signals. During a trend signals are generated following a lull in momentum. This will be signaled by a change in the color of the histogram. When momentum is waning it will turn red. Signals require a couple of conditions. First you have to have a recognized trend. Second you can only trade with the trend. Third the signal is only valid when the histogram is above zero in an uptrend and below zero in a downtrend. The signal is generated when the histogram turns red for two bars following a series of green bars. This red bar should be followed by a green bar for confirmation.
The Awesome Oscillator Does Not Suck
This oscillator does not suck. It has real potential for binary traders and I think it can be used in multiple time frames. It is similar to MACD so it will be easy to learn. It has a simple formula that is easy to understand and there is a lot of information on it. It provides a unique way to view the markets and gives signals that I think will be reliable. I also think that it will fit very well into any trading strategy. It can be used alongside support/resistance, moving averages, Fibonacci’s, Bollinger Bands or other types of analysis to provide confirmations of other signals.
It’s Not All Roses
There are some limitations to the AO that suck. I don’t think it will be very good for range bound stocks. The signals require time to develop and are best seen in trending market. The tops and bottoms of the range may produce to many whipsaws and traps. It also has limited availability, be sure to check if your chart services has it. If not you can get it off the internet but it may cost you. Other than that I don’t see any reason not to give it a try.
My Last Words On The Awesome Oscillator for Binary Options
The Awesome Oscillator is definitely worth a try. The formula is simple and based on well recognized technical analysis. The signals it generates are the same. It even brings something new to the table that other momentum indicators don’t have. The visual representation of the histogram bars and the changing colors provide a good signal for short term trend following traders. The system even comes with targets for tips on how to spot times to stop trading. The AO will probably find a loyal following among binary options traders.
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