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Technical Analysis - Part XIII

Technical Analysis - Part XIII


Good day everybody,

Welcome to CryptoGod-1's blog on all things crypto. Today we are going to continue the series on Technical Analysis and why it can be such an important asset for new or experienced traders. In this series I am covering some of the different Technical Analysis and Indicators which can be used to help determine market movement and sentiment when trading. For Part XIII the focus will be on The Awesome Oscillator.

 

The Awesome Oscillator

The Awesome Oscillator is an indicator used to measure market momentum and was developed by the American financial analyst Bill Williams. It is a boundless indicator, which is anchored around a zero line and displays its information via a histogram. This histogram is created from the average of two simple moving averages (SMA's), one for recent momentum (5 periods) and the other from a longer period of time in the market (34 periods). It is important to note that the SMA's are not calculated from their closing price, but rather from the midpoint in each bar. This provides insight for a trader into the weakness or strength of an asset, and can also be used to confirm bullish and bearish trends and anticipate possible reversals. This makes the Awesome Oscillator useful for technical analysis because it takes standard momentum oscillators and adjusts their calculation's in order to strengthen a common weakness among them.

 

Calculating The Awesome Oscillator

To calculate the Awesome Oscillator, a trader must follow these rules:

 

*The SMA is calculated by adding together the median price of each period and dividing by the total number of periods. 

*Use the midpoint of to ensure the midpoint value is achieved, which better tracks volatility. This can be done by adding the high-point of the candle with the low-point of the candle and dividing it by 2.

 

1. Take the midpoint of the last 5 candles and calculate the average of the SMA for these prices. This gives the Median of SMA 5.

2. Take the midpoint of the last 34 candles and calculate the average of the SMA for these prices. This gives the Median of SMA 34.

3. Awesome Oscillator = Median of SMA 5 minus Median of SMA 34 (SMA 5 - SMA 34)

 

Below is an image from Moneycontrol.com which gives a clear indication of how to Awesome Oscillator is calculated.

Image41372019

 

 

How to use The Awesome Oscillator

The Awesome Oscillator is shown as a standalone piece of TA with a zero line and a histogram. The histogram contains bars which change from red to green and vice versa. The values of the histogram will also fluctuate above the zero line, but the colours may be green or red regardless of whether the histogram is above or below the zero line. Key information regarding how to read the Awesome Oscillator is as follows:

  • When the colour of a bar is green, this is because its value is higher than the previous bar was.
  • When the colour of a bar is red, this is because its value is lower than the previous bar was.
  • When the histogram bars are above the Zero Line, this is an indication that the short term period is trending higher than the long term period.
  • When the histogram bars are below the Zero Line, this is an indication that the short term period is trending lower than the long term period.

 

Taking this information into account, traders can spot a variety of signals which can be used for entering and exiting positions, and whether to go long or short, when trading. The most commonly used patterns and signals associated with the Awesome Oscillator are:

  • Zero Line
  • Crossing the Zero Line
  • Twin Peaks
  • Saucer

 

Zero Line

A simple and basic way of reading the Awesome Oscillator, when the histogram is below the zero line and forming a peak, a trader should go short. When the histogram is above the zero line and forming a gap, a trader should go long. This is a very simple strategy but also less reliable than the others I will mention below and therefore should be limited in its use, or combined with the others.

 

Crossing the Zero Line

This is another straightforward and very basic signal generated by the Awesome Oscillator. When the histogram bar crosses above or below the zero line, this is an indicator of a change in momentum. Therefore a trader can use it as a signal, and read into the bar crossing above the Zero Line as a signal that the short term momentum is now rising faster than the long term momentum. This is a representation of a bullish buying opportunity, meaning a trader should go long. Similarly, when the histogram bar cross below the Zero Line, this is a signal that the short term momentum is slowing and falling faster than the long term momentum. This is a representation of a bearish selling opportunity, meaning a trader should go with a short position. However, just like with the Zero Line strategy, this is far from fool-proof and therefore should be used in conjunction with other technical indicators and analysis.

 

Twin Peaks

This method considers the difference between two peaks on the same side of the Zero Line. This attempts to identify market reversals through examining the difference between the two peaks. This method can appear as both bullish and bearish on the Awesome Oscillator.

Bullish Twin Peak

This occurs when there are two peaks below the Zero Line. The bars must remain below the Zero Line during the formation of the two peaks, if they cross the Zero Line, then the signal is false. The second peak must be higher than the first peak, meaning that the second peak is closer to the Zero Line than the first peak. The initial bar after the second peak must also remain below the Zero Line, but must be green in colour. When all of this happens, a trader should enter a long position.

Bearish Twin Peak

This happens when there are two peaks above the Zero Line. The bars must remain above the Zero Line during the formation of the two peaks, if they cross the Zero Line during the formation of the pattern then the signal is void. The second peak must be lower than the first peak, meaning that the second peak is closer to the Zero Line than the first. The initial bar after the second peak must also remain above the Zero line and be red in colour, as this will indicate that the second peak has formed and is not continuing to grow. When all of this happens, a trader should enter a short position.

 

Below is an image from Moneycontrol.com which gives a clear indication of both Bullish and Bearish Twin Peak patterns.

Image61372019

 

Saucer

This strategy is named Saucer because when this pattern forms on the Awesome Oscillator, it resembles that of a saucer. It can be in both bullish and bearish patterns, and requires changes in three consecutive bars, all on the same side of the Zero Line. This will look for rapid changes in momentum. 

Bullish Saucer

This happens when the histogram bars are above the Zero Line. It consists of two consecutive red bars, where the second bar is lower than the first bar, followed by a green bar. This formation resembles a small saucer-shaped dip in the overall histogram. Traders can use this as a signal to open a buy position, generally during the close of the third bar, or during the fourth providing it is also green.

Bearish Saucer

This happens when the histogram bars are below the Zero Line. It consists of two consecutive green bars, where the second bar is lower than the first bar, followed by a red bar. This formation resembles a small saucer-shaped dip in the overall histogram. Traders can use this as a signal to open a buy position, generally during the close of the third bar, or during the fourth bar providing it is also red.

 

These strategies work best when combined with other technical analysis. A very popular piece of TA used in conjunction with the Awesome Oscillator is the Moving Average Convergence Divergence (MACD) indicator. This is because both are indicators which make use of histograms, and as with other histograms, the basic principles are the same. The cross of the zero level up indicated the upcoming trend and the cross of the zero level down, the possible reversal to the downtrend.

 

Below is an image taken from the BTC/USDT 1 hour chart, where a Bearish Saucer appeared and was followed by a drop in price. There were two green candles, followed by a red candle for the third candle. The fourth candle was also a red one. Over the next 21 hours the price decreased by up to 1,000, taking Bitcoin at the time of the third candle from around 23,600 to 22,800.

7c8d67fc3860130f4ae03b4f334fc06f9e2f83af852963949b152ef544671e5f.jpg

 

 

Limitations of The Awesome Oscillator

There are many benefits of using the Awesome Oscillator when trading to pick over reversals in the overall strength and momentum of an asset. Momentum is crucial to understand price movements, but like any indicator it can be difficult to generate quality signals and the Awesome Oscillator should be used with caution. False signals can be read by not fully understanding the conditions of the market. or an asset only experiencing a short term reversal in its price movement. Experienced traders learn how to fully make use of the Awesome Oscillator through practice over time, and by combining it with other forms of TA. A strong strategy is to manage your risk with stop and limit orders, therefore any false signals or not realised signals will be manageable, especially in tangible markets.

 

 

Conclusion on using The Awesome Oscillator for TA

As a trader, whether it be day trading or long term trading, using the Awesome Oscillator indicator can be very beneficial in spotting the overall strength of a tend, while also indicating any potential upcoming reversals. The Awesome Oscillator is shown as a histogram containing red and green bars, along with a Zero Line. The bars move above and below the Zero Line while changing colour constantly. A bar above the Zero Line indicates the short term period is trending higher than the long term period. A bar below the Zero Line indicates the short term period is trending lower than the long term period. A green bar indicates that value is higher than the previous bar, while a red bar indicates its value is lower than the previous bar. There are numerous strategies for using the Awesome Oscillator, including the Zero Line Crossing, Twin Peaks, and the Saucer. Therefore the Awesome Oscillator can be strong patterns and signals on reversals in momentum and trends, but should not be used as a standalone indicator. Instead it should be used in conjunction with other indicators to give stronger results and more reliable signals, for example the Moving Average Convergence Divergence (MACD) indicator.

As stated whether you are experienced or new, Technical Analysis can always be a useful asset when trading. Just remember it is not guaranteed and nobody can predict the future, no matter how certain you believe the patterns to be. It is always just another tool of the trade to help make more informed decisions when trading. It can be easy to get caught into false signals when a pattern appears or the bars cross the Zero Line, indicating an upcoming trend reversal which never takes place.

It is important to use the Awesome Oscillator indicator along with other TA to get the correct signals for understanding the strength of a trend. Always zoom out, if trading on a 15 minute chart check the 1 hour or 4 hour or even 1 day chart to give you a better idea of the overall trend strength via the Awesome Oscillator, along with checking the trend and momentum strength of the larger overall trend compared to short term ones.

 

You can find the previous parts to the series here:

Technical Analysis - Part I - Exponential Moving Average (EMA)

Technical Analysis - Part II - Relative Strength Index (RSI)

Technical Analysis - Part III - Bollinger Bands (BB)

Technical Analysis - Part IV - Moving Average Convergence Divergence (MACD)

Technical Analysis - Part V - On-Balance Volume (OBV)

Technical Analysis - Part VI - The Average Directional Index (ADX)

Technical Analysis - Part VII - The Aroon Indicator

Technical Analysis - Part VIII - The Accumulation/Distribution Indicator (A/D)

Technical Analysis - Part IX - The Supertrend Indicator

Technical Analysis Part X - Parabolic SAR Indicator

Technical Analysis Part XI - Support & Resistance Levels

Technical Analysis Part XII - Fibonacci Retracement Levels

 

Also feel free to check out:

Crypto Futures & Funding Fees

 

I hope this post was beneficial and of some use, and I plan on continuing the series with the next instalment focusing on the Arnaud Legoux Moving Average. Of course each technical analysis provides different beneficial information, so combining your most trusted and favourite ones can be the best strategy for finding entry and exit points when trading.

 

Have a great day.

Peace. CryptoGod-1.

 

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cryptogod-1
cryptogod-1

Designer, creator, writer, artist and life enthusiast. I love to read and write and enjoy sharing my passion for crypto, sports, literature and everything and anything I can enjoy in life.


CryptoGod-1 : Crypto & Blockchain
CryptoGod-1 : Crypto & Blockchain

Enthusiast here looking to share my ideas, thoughts, analysis, and experience when it comes to all things crypto

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