What Is the Awesome Oscillator? Complete Trading Guide

The Awesome Oscillator (AO) is a momentum indicator developed by trader and author Bill Williams. It measures market momentum by calculating the difference between a 34-period and a 5-period simple moving average of the bar’s midpoint price (the median price: high plus low, divided by two). The result is displayed as a histogram of coloured bars above and below a zero line. Green bars indicate rising momentum; red bars indicate falling momentum. The Awesome Oscillator helps traders confirm trend direction, spot momentum divergence, and identify potential trend reversals.

Introduction: What Makes the Awesome Oscillator Different?

Most momentum indicators — like the MACD, RSI, or Stochastic — are built on closing prices. The Awesome Oscillator takes a different approach. By using the midpoint of each bar rather than its closing price, the AO captures the true centre of price activity during each candle, which Bill Williams argued gives a more accurate and less manipulable picture of actual market momentum.

The name itself reflects Williams’ philosophy: this is a “no-frills,” straightforward momentum tool that cuts through complexity. Unlike the RSI or Stochastic, there are no overbought or oversold levels. The AO doesn’t tell you a market has moved “too far” in one direction. Instead, it focuses entirely on the speed and direction of momentum — is the market accelerating in one direction, decelerating, or reversing?

The Awesome Oscillator is a standard built-in indicator on MetaTrader 4 and MetaTrader 5, and it forms part of Bill Williams’ complete trading system alongside the Alligator indicator and Fractals.

How the Awesome Oscillator Is Calculated

The formula for the Awesome Oscillator is straightforward:

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

Where:

• Median Price = (High + Low) / 2
• SMA(Median Price, 5) = the 5-period simple moving average of the median price
• SMA(Median Price, 34) = the 34-period simple moving average of the median price

The result is plotted as a histogram centred on a zero line.

• When the 5-period SMA is above the 34-period SMA, the AO value is positive — recent momentum is stronger than the longer-term average momentum (bullish).
• When the 5-period SMA is below the 34-period SMA, the AO value is negative — recent momentum is weaker than the longer-term average (bearish).

Bar Colouring

The colour of each bar on the histogram is determined by comparing the current bar’s value to the previous bar’s value:

• Green bar: The current AO value is higher than the previous bar (momentum increasing).
• Red bar: The current AO value is lower than the previous bar (momentum decreasing).

This is an important distinction: a green bar does not necessarily mean the AO is positive (above zero). A bar below zero that is less negative than the previous bar will still be coloured green. The colour tells you the direction of momentum change, not the absolute level.

Reading the Awesome Oscillator

Above vs Below Zero

The most fundamental reading of the AO is its position relative to the zero line:

• AO above zero: Short-term momentum exceeds long-term momentum — bullish bias.
• AO below zero: Short-term momentum is weaker than long-term momentum — bearish bias.

Zero-line crossovers are one of the simplest AO signals. When the AO crosses from negative to positive (rising through zero), it indicates a potential shift to bullish momentum. When it crosses from positive to negative, it signals a potential shift to bearish momentum.

Histogram Colour Patterns

Beyond the zero line, the colour patterns within the histogram provide nuanced signals:

• A sequence of consecutive green bars above zero indicates sustained, accelerating bullish momentum — a strong uptrend.
• A sequence of consecutive red bars below zero indicates sustained, accelerating bearish momentum — a strong downtrend.
• Green bars below zero suggest momentum is recovering from a bearish phase but hasn’t yet confirmed a trend reversal.
• Red bars above zero suggest momentum is fading in a bullish phase — a potential warning signal for longs.

The Three Primary Awesome Oscillator Trading Signals

Bill Williams identified three specific signal patterns within the AO that he considered high-probability trade setups.

Signal 1: Zero Line Crossover

The simplest AO signal occurs when the histogram crosses the zero line:

• Buy signal: AO crosses from below zero to above zero (bullish momentum confirmed).
• Sell signal: AO crosses from above zero to below zero (bearish momentum confirmed).

This signal works best in trending markets. In choppy, sideways conditions, the AO will oscillate around zero repeatedly, generating multiple false crossover signals. For this reason, most traders only use zero-line crossovers when there is additional evidence of a trend — for example, when the Alligator indicator confirms a trending market state.

Signal 2: The Twin Peaks (Divergence Signal)

The Twin Peaks signal is a momentum divergence setup and one of the more powerful signals the AO generates.

Bearish Twin Peaks (Sell Setup):

1. Both peaks occur above the zero line.
2. The second peak is lower than the first peak (lower momentum high).
3. The trough between the two peaks does not cross below zero.
4. A red bar appears after the second (lower) peak — triggering the sell.

This pattern indicates that while price may have continued making new highs, momentum has failed to confirm those highs — a classic divergence that often precedes a reversal.

Bullish Twin Peaks (Buy Setup):

1. Both troughs occur below the zero line.
2. The second trough is higher than the first trough (higher momentum low).
3. The peak between the two troughs does not cross above zero.
4. A green bar appears after the second (higher) trough — triggering the buy.

This signals that downside momentum is fading and a potential bullish reversal may be developing.

Signal 3: The Saucer

The Saucer signal occurs entirely on one side of the zero line and represents a pause or shallow pullback within an existing trend before momentum resumes.

Bullish Saucer (Buy Setup — above zero):

1. The AO is above the zero line throughout.
2. Two consecutive red bars appear (momentum briefly dipping).
3. The second red bar is higher than the first red bar.
4. A green bar appears after the second red bar — triggering the buy.

The pattern visually resembles a saucer (a shallow, rounded dip) in the bullish histogram. It signals a brief consolidation in an uptrend, after which momentum resumes upward.

Bearish Saucer (Sell Setup — below zero):

1. The AO is below the zero line throughout.
2. Two consecutive green bars appear (a temporary momentum uptick within a downtrend).
3. The second green bar is lower than the first green bar.
4. A red bar appears after the second green bar — triggering the sell.

Combining the Awesome Oscillator with Other Indicators

The AO is most effective when used as part of a broader trading system rather than in isolation. Here are the most common and effective combinations.

AO + Alligator Indicator

Bill Williams designed the AO and the Alligator to work together as complementary components of his Profitunity trading system. The combination works as follows:

• Use the Alligator to identify whether the market is trending or ranging.
• Use the AO to confirm the strength and direction of that trend, or to identify early signals of trend reversal through Twin Peaks divergence.
• Only enter trades when both indicators agree: Alligator awake and eating in one direction, AO confirming that momentum supports the same direction.

AO + MACD

Both the AO and MACD are momentum indicators, but they measure momentum differently:

• MACD uses exponential moving averages of closing prices.
• AO uses simple moving averages of median prices.

When both are in agreement — both positive and rising, or both negative and falling — the momentum signal is stronger. When they diverge from each other, it warrants caution.

AO + Support and Resistance

One of the most practical AO applications is using it to confirm breakouts from key support and resistance levels:

• When price breaks above a resistance level and the AO simultaneously turns green and is positive, the breakout has momentum confirmation — higher probability of continuation.
• When price breaks below support and the AO turns red and negative, the breakdown is confirmed by momentum.

AO + Volume Indicators

Adding a volume indicator (such as the Money Flow Index or On-Balance Volume) alongside the AO strengthens its signals further. Rising AO momentum supported by rising volume provides higher-conviction directional signals than momentum alone.

Awesome Oscillator Settings

The AO uses fixed parameters: 5-period and 34-period simple moving averages. These settings are not adjustable in the standard indicator — the calculation is hardcoded. This is by design: Bill Williams believed that these specific periods capture the natural rhythm of market momentum cycles and should not be altered.

Some custom indicator versions allow modification of these periods, but most traders using the AO work with the original settings on daily, H4, H1, or M15 charts.

Advantages of the Awesome Oscillator

Simple, visual interpretation: The colour-coded histogram makes it easy to assess momentum direction and strength at a glance.

No overbought/oversold traps: Unlike the RSI or Stochastic, the AO does not have fixed overbought/oversold thresholds that can cause premature exits in strongly trending markets.

Three distinct signal types: The Zero Line Crossover, Twin Peaks, and Saucer signals provide multiple setups with different risk/reward characteristics.

Effective divergence tool: The Twin Peaks setup is a reliable divergence signal that can flag momentum exhaustion before price reverses.

Median price basis: Using (High + Low) / 2 instead of closing prices makes the indicator less susceptible to closing-price manipulation and spikes.

Limitations of the Awesome Oscillator

Lagging nature: The AO is based on moving averages and therefore lags behind real-time price action. Signals always confirm momentum that has already begun, rather than predicting it.

Weak in ranging markets: In sideways, low-momentum markets, the AO oscillates around zero without generating clear directional signals, and zero-line crossovers become unreliable.

No overbought/oversold levels: While this is listed as an advantage, it is also a limitation — the AO provides no guidance on when a trend may be overextended.

Requires practice: The Three Sisters/Twin Peaks patterns require some practice to identify correctly on live charts, particularly the Saucer pattern which can look ambiguous in real time.

Awesome Oscillator vs MACD: Key Differences

How to Add the Awesome Oscillator in MetaTrader

On MT4 and MT5:

1. Open your chart.
2. Click Insert → Indicators → Bill Williams → Awesome Oscillator.
3. The AO histogram will appear in a separate sub-window below your price chart.
4. No settings to adjust — the standard 5/34 periods are pre-set.

Frequently Asked Questions

Is the Awesome Oscillator good for day trading? Yes, the AO can be used effectively on intraday timeframes such as M15, M30, and H1. However, signals on shorter timeframes generate more noise. Most day traders combine the AO with a trend filter like the Alligator on a higher timeframe before dropping down to their entry timeframe.

What does a red bar on the Awesome Oscillator mean? A red bar means the current AO value is lower than the previous bar — momentum is decreasing from the prior bar. It does not necessarily mean the AO is negative or that a sell signal has been triggered. Context matters: a red bar above zero in an uptrend may indicate a brief pause, while a red bar below zero in a downtrend confirms continued bearish momentum.

Can the Awesome Oscillator predict reversals? The Twin Peaks signal is specifically designed to identify potential reversals through momentum divergence. However, like all technical signals, it is probabilistic rather than certain — false signals occur, particularly in trending markets where momentum divergence can persist before price eventually follows.

What is the best timeframe for the Awesome Oscillator? Many professional traders prefer H4 and daily charts for AO signals, as they filter out short-term noise while still being timely enough for swing trading. The indicator works on all timeframes, but signal reliability generally improves on higher timeframes.

Conclusion

The Awesome Oscillator earns its name by delivering a clean, direct measurement of market momentum without unnecessary complexity. Its three distinct signal types — Zero Line Crossover, Twin Peaks, and Saucer — provide a structured framework for identifying trend entries, momentum confirmations, and potential reversals.

As a standalone tool, the AO has clear limitations, particularly in ranging markets. But as part of Bill Williams’ integrated trading system — used alongside the Alligator indicator and Fractals — or combined with support/resistance analysis and volume confirmation, the Awesome Oscillator is a genuinely powerful and versatile momentum tool.

Traders who take the time to understand its three signal patterns and learn to apply them in context — rather than mechanically acting on every bar change — will find the AO to be a meaningful addition to their analytical toolkit.

Risk Warning: Trading CFDs and forex involves a high risk of loss. This article is intended for educational purposes only and does not constitute investment advice.