Awesome Oscillator (AO)

The Awesome Oscillator (AO) was created by the famous trader Bill Williams to measure the difference between the latest 5 periods Simple Moving Average (SMA) and 34 periods SMA. It is plotted as a histogram, like the MACD. Simply put, when the histogram is above the zero line and increasing, it signals that bullish momentum is increasing. When the histogram is below the 0 line and decreasing, it signals that bearish momentum is increasing.

Most traders use the AO zero line crossover when the histogram goes above or below the 0 line from the other side, as a signal for change in predominant trend. But if you use the AO as a standalone indicator this way, you will likely find many false signals. The best way to use the AO indicator is called the Twin Peak strategy, which is a fancy term that basically describes trading divergence.

The important thing to remember that bearish Twin Peaks occur above the 0 line and bullish Twin Peaks occur below it.

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