Technical analysis Technical indicators

Awesome Oscillator. Let Us Check its Effectiveness

Elena Berseneva 16 march 2022 202 4

Let’s talk about the Bill Williams Awesome Oscillator in the article.


The author in his book titled “New Trading Dimension” writes the following about his creation: “It is, without doubts, the best momentum indicator available in the stock and commodity markets”. “If you really know how to use this indicator, it should be worth at least seven figures to you in the next few years.”

 

Let us check the effectiveness of Awesome Oscillator’s signals using historical data of various financial instruments. 

Hypothesis
To conclusion

Signals of the Awesome Oscillator’s indicator are profitable.

К выводам
Data used

This sample will be represented by:

  • 23 currency pairs (Forex);
  • 5 commodity futures (Commodities);
  • 2 stock indices (Indices);
  • 30 stocks (Stocks).


Timeframes used:

  • H1 (1 hour): the history for the period of 5 years,
  • D1 (1 day): the history for the period of 10 years.


The sample is 2 101 235 values.

An indicator of Awesome Oscillator (АО) is used to measure the power of price movement and it is based on two simple moving averages (SMA). On charts, it is drawn in form of the colorful histogram which is separated by the zero line. Bars of the histogram can be higher or lower the zero value and can change the color depending on the direction of changes in parameters:

AO is the difference between two simple moving averages (SMA) with the periods of 5 (rapid) and 34 (slow):

 

AO = SMA (5) – SMA (34)

 


In the calculation of the rapid and slow moving averages, the median price is used  (the arithmetic average from the maximum and minimum values of the candlestick):

 

MEDIAN PRICE = (HIGH + LOW) / 2

 


Periods of moving averages are fixed (5 and 34) and do not involve settings.

 

The Awesome oscillator shows changes in the dynamics of the price movement. The more intensive the price moves, the larger the gap is between the rapid and the slow moving averages, and the longer the columns of the oscillator’s histogram. 

 


Along with the indicator, Bill Williams suggested variants of its application. It is three patterns which can be shown by the oscillator’s bar histogram:

  1. A Saucer
  2. The Zero Line Cross
  3. Two Peaks


A Saucer forms when three consequent columns appear on the histogram, the first two are the same color and the third one is another color. Thus, the second (middle) column is shorter the two last columns. We seek buy signals in the positive area of the histogram and we seek sell signals in the negative area. 

Buy signal
(AO[1], AO[2], AO[3] ) > 0 (The area chart is above 0)
AO[2] < AO[1]
AO[2] < AO[3]
Sell signal
 (AO[1], AO[2], AO[3] ) < 0 (The area chart is below 0)
AO[2] > AO[1]
AO[2] > AO[3]




The Zero Line Cross is interpreted by the following way:

  • When the indicator’s histogram moves from the bottom part to the top part (crosses the zero value), this means that the rapid SMA crossed the slow SMA bottom-up. This is a buy signal.
  • A reverse cross is a sell signal. When the indicator’s histogram moves from the top part to the bottom part.
Buy signal
AO[1] > 0
AO[2] < 0
Sell signal
AO[1] < 0
AO[2] > 0




Two Peaks represents the two last extrema on the indicator’s chart.

 

A buy signal is two consequent minimums following each other and the second minimum is slightly above the first one and the gap between them is not in the area of positive values of the histogram

 

A sell signal is given by the two consecutive maximums with the second maximum slightly below the first one and the gap between them is not in the negative histogram area. 

Buy signal
Histogram is below the zero line
AO[Р1] < AO[Р1-1] and AO[Р1] < AO[Р1+1]
AO[Р2] < AO[Р2-1] and AO[Р2] < AO[Р2+1]
AO[Р1] > AO[Р2]
Sell signal
Histogram is above the zero line
AO[Р1] > AO[Р1-1] and AO[Р1] > AO[Р1+1]
AO[Р2] > AO[Р2-1] and AO[Р2] > AO[Р2+1]
AO[Р1] < AO[Р2]



Let us test the «Saucer», «Zero Line Cross» and «Two Peaks» signals against a large amount of historical data of various financial instruments and on the basis of two timeframes.

 


Now, we specify conditions of closing a trading position.

 

Closing a position:

The lifetime of the position is set at 5 or 10 (in candlesticks) in all cases. 



Analysis of the Results

 

First, we will estimate the results based on the sample size.



The H1 timeframe (1 hour):


Event
Market segments
Number of candlesticks
Number of events
Saucer
Forex
994755
65149
Commodities
172240
11480
Indices
87600
5502
Stocks
628011
42876
Total
1882606
125007
Zero Line Cross
Forex
994755
41723
Commodities
172240
7194
Indices
87600
3559
Stocks
628011
27085
Total
1882606
79561
Two Peaks
Forex
994755
32204
Commodities
172240
5732
Indices
87600
2707
Stocks
628011
20466
Total
1882606
61109



The D1 timeframe (1 day):


Event
Market segments
Number of candlesticks
Number of events
Saucer
Forex
83950
5462
Commodities
18250
1174
Indices
7300
470
Stocks
109129
7375
Total
218629
14481
Zero Line Cross
Forex
83950
3514
Commodities
18250
724
Indices
7300
273
Stocks
109129
4516
Total
218629
9027
Two Peaks
Forex
83950
2694
Commodities
18250
572
Indices
7300
221
Stocks
109129
3467
Total
218629
6954



The total number of candlesticks and events:


Event
Number of candlesticks
Number of events
Saucer
2 101 235
139488
Zero Line Cross
2 101 235
88588
Two Peaks
2 101 235
68063



Next, we discover the share of events in % in the total number of initial candlesticks on the basis of timeframes:

 


The H1 timeframe (1 hour):


Market segments
Saucer
Zero Line Cross
Two Peaks
Forex
6.5
4.2
3.2
Commodities
6.7
4.2
3.3
Indices
6.3
4.1
3.1
Stocks
6.8
4.3
3.3



The D1 timeframe (1 day):


Market segments
Saucer
Zero Line Cross
Two Peaks
Forex
6.5
4.2
3.2
Commodities
6.4
4.0
3.1
Indices
6.4
3.7
3.0
Stocks
6.8
4.1
3.0



The “Saucer” signal more often appears on charts, and the “Two Peaks” signal appears rarely.

 


Now, we turn to the results of performance of trading signals obtained through the formed «Saucers», «Zero Lines Crosses», and «Two Peaks».

 

We will assess the results with the two following criteria:

  • Momentum (m) reflects the average change in quotes of financial instruments at the moment of fixating a position, in %. A positive value of the momentum indicates profitability of the signal performance, a negative value indicates a loss.
  • SPP, the share of profitable positions, %.

 


Let us see the results based on holding positions and timeframes.

 

Let’s take the following notations:

«H1 / 5», fixing a position at the 5th candlestick over the 1-hour timeframe;

«H1 / 10», fixing a position at the 10th candlestick over the 1-hour timeframe;

«D1 / 5», fixing a position at the 5th candlestick over the 1-day timeframe;

«D1 / 10», fixing a position at the 10th candlestick over the 1-day timeframe;

 

 

Saucer

 

The Number of events, the Momentum in %, and the Share of profitable positions in % on a term-to-term basis of the hold of positions, timeframes, and market segments


Timeframe / Closing
Indicator
Stocks
Indices
Commodities
Forex
All
Н1/5
Number of signals
42876
5502
11480
65149
125007
Momentum
0.000
0.009
-0.016
-0.002
-0.002
SPP
48.9
48.4
48.1
48.1
48.5
Н1/10
Number of signals
42873
5500
11479
65141
124993
Momentum
0.000
0.007
-0.016
-0.003
-0.003
SPP
49.3
49.2
48.7
48.5
48.9
D1/5
Number of signals
7375
470
1174
5462
14481
Momentum
0.055
0.057
0.008
0.012
0.033
SPP
51.1
50.6
49.7
50.2
50.6
D1/10
Number of signals
7372
468
1173
5454
14467
Momentum
0.029
0.377
0.069
0.027
0.125
SPP
50.4
57.1
51.2
51.5
51.1



Zero Line Cross


The Number of events, the Momentum in %, and the Share of profitable positions in % on a term-to-term basis of the hold of positions, timeframes, and market segments


Timeframe / Closing
Indicator
Stocks
Indices
Commodities
Forex
All
Н1/5
Number of signals
27085
3559
7194
41723
79561
Momentum
-0.042
-0.001
-0.009
0,000
-0.013
SPP
48.0
49.1
48.7
48.8
48.4
Н1/10
Number of signals
27075
3559
7193
41720
79547
Momentum
0.001
0.001
-0.014
-0.001
-0.003
SPP
49.5
49.3
49.0
48.9
49.2
D1/5
Number of signals
4516
273
724
3514
9027
Momentum
-0.019
-0.211
-0.095
0.009
-0.079
SPP
49.3
46.5
49.6
49.8
49.5
D1/10
Number of signals
4506
273
723
3511
9013
Momentum
-0.044
-0.136
-0.083
-0.025
-0.072
SPP
50.4
45.7
48.8
48.8
49.5



Two Peaks


The Number of events, the Momentum in %, and the Share of profitable positions in % on a term-to-term basis of the hold of positions, timeframes, and market segments


Timeframe / Closing
Indicator
Stocks
Indices
Commodities
Forex
All
Н1/5
Number of signals
20466
2707
5732
32204
61109
Momentum
-0.004
-0.011
0.023
0.003
0.003
SPP
48.9
48.6
51.1
50.1
49.5
Н1/10
Number of signals
20465
2707
5732
32202
61106
Momentum
-0.033
-0.022
0.040
0.002
-0.003
SPP
48.9
48.2
51.3
50.5
49.7
D1/5
Number of signals
3467
221
572
2694
6954
Momentum
-0.093
0.056
-0.118
-0.024
-0.045
SPP
48.8
49.8
48.5
49.1
48.9
D1/10
Number of signals
3466
221
572
2692
6951
Momentum
0.004
-0.260
-0.249
-0.041
-0.137
SPP
49.9
42.5
47.2
48.1
48.8



Let us summarize the Results using the following diagrams:

Conclusion

Momentum


The highest momentum of 0.125 % is shown by the signals of «Saucer» over the 1-day timeframe with fixating a position at the 10th candlestick.


The lowest momentum of -0.137 % is indicated by the signals of «Two Peaks» over the 1-day timeframe with fixating a position at the 10th candlestick.


In general, momentums of signals of the Bill Williams Avesome Oscillator do not reach the minimum significant value of 0.3% modulo for the daily timeframe and do not reach 0.15% modulo for the 1-hour timeframe.



SPP


The share of profitable positions of signals of the 1-hour timeframe vary between 48.4% and 49.7%; signals of the daily timeframe vary between 48.8% and 51.1%.




The effectiveness of signals of the Bill Williams Awesome Oscillator has not been identified in the market forecasting.

Detailed results are shown in the Appendix:

XLSX (0.06 MB)Application to the article 'Awesome Oscillator. Let's check its effectiveness'.xlsx

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