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Welcome to this detailed guide about how to trade and calculate the Awesome Oscillator and its partner the Acc/Dec Indicator.
The Awesome and Acc/Dec Indicator are an exciting indicator pair that could help you get some sensational winning trades.
Video – Calculate the Awesome Oscillator and Acceleration/Deceleration Indicator
Many people prefer to watch rather than read so check out the video to see me demonstrate how to calculate the Awesome Oscillator. The formulas used are at the bottom of this article.
Modern-day financial markets are incredibly complicated. They have vast numbers of participants, all with different objectives and financial power.
And they are continually shifting, trying to find the perfect balance; the exact price where supply and demand are equal. As new information filters into the market, price moves up and down, seeking an equilibrium. Occasionally, the new information shifts the market in one direction, and it keeps going – a new trend has started. These powerful moves are opportunities for traders to make big money.
Nobody can predict where the market will go next but what we can do is take advantage of powerful moves when they come.
“It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!”Edwin Lefèvre – Reminiscences of a Stock Operator
Despite the cool name, the Awesome Oscillator is a simple indicator to calculate – it is just a moving average crossover. It has fixed settings of 5 and 34 and uses the average price calculated by the (High+Low) / 2. The indicator looks similar to the MACD, but it slightly slower. The green and red colours used in the Awesome Oscillator are a nice touch and are useful for quickly identifying changes in direction.
The Acc/Dec Indicator measures the momentum of the Awesome Oscillator. This is useful because it shows us whether price momentum is speeding up or slowing down. Like the Awesome Oscillator, it uses green and red bars to confirm whether it is rising or falling.
How to Trade Using the Awesome Oscillator and Acc/Dec Indicator
In his book, New Trading Dimensions: How to Profit from Chaos in Stocks, Bonds, and Commodities, Bill Williams sets out his method of trading using these two indicators.
Awesome Oscillator buy signals are created when the indicator:
- Crosses from below 0 to above 0
- When the oscillator is above the 0 line. The oscillator changes from green (upward movement) to red (downward movement) and back to green again.
- When the oscillator is below the 0 line. The oscillator makes a higher low and turns from red to green.
Awesome Oscillator selling signals are created when the above buy signals are reversed.
Acc/Dec Indicator buy signals are created when the indicator:
- When the indicator is above the 0 line. The indicator changes from red to green and then has two consecutive green bars.
- When the indicator is below the 0 line. The indicator changes from red to green and has three consecutive green bars.
The Acc/Dec indicator sell signals are created when the above buy signals are reversed.
Putting it Together
The next part of Bill Williams’ trading method is the most interesting to me. He recommends trading aggressively when the market is moving in your favour.
If you have entered a long position based on one of the indicators and the next time period shows both the AO and AC green and also the market has closed higher then you should add to the position. If the following time period also has a green AO, green AC and higher close then you should again add to the position. This process should be continued up to a maximum of five positions.
I like this method because it forces us to be brave when most peoples’ instinct is to close out the position to protect the profit gained.
The trading strategy of adding to a winning position is the method used by Jesse Livermore in the excellent book, Reminiscences of a Stock Operator. This mindset is summed up in the following quote:
“It took me five years to learn to play the game intelligently enough to make big money when I was right.”
New Trading Dimensions
In the book, New Trading Dimensions, Bill Williams explains his trading philosophy. He also introduces some excellent and very practical technical indicators. If you want to learn more about his ideas I recommend having a look at this book. You can check it out on Amazon here: New Trading Dimensions: How to Profit from Chaos in Stocks, Bonds, and Commodities
If you are interested in Bill Williams’ ideas you might also want to see the 2008 updated version of Trading Chaos: Maximize Profits with Proven Technical Techniques.
Average Price H4 =(D4+E4)/2
5 period Simple Moving Average I8 =AVERAGE(H4:H8)
34 period Simple Moving Average J37 =AVERAGE(H4:H37)
Awesome Oscillator K37=I37-J37
5 period SMA of Awesome Oscillator L41 =AVERAGE(K37:K41)
Accelerator/Decelerator M41 =K41-L41
Power Up Your Trading
Being able to test your strategies will transform your trading. You will be able to choose the best and most profitable strategies. Then trade with confidence, knowing that your strategy has performed well.
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