# Awesome Oscillator. Let Us Check its Effectiveness

16 March 2022 704 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

Signals of the Awesome Oscillator’s indicator are profitable.

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 signalAO[1] > 0AO[2] < 0 Sell signalAO[1] < 0AO[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 signalHistogram is below the zero lineAO[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 signalHistogram is above the zero lineAO[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:

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