Awesome Oscillator Guide: From Basics to Trading Setups

What is an Awesome Oscillator?

The Awesome Oscillator indicator measures market momentum using the median price of each candlestick rather than the closing price. This median price is calculated as the average of the high and low for the period, which smooths out some noise and focuses on the real mid-point of trading activity.

On a chart, the AO appears as a histogram below the price candles:

• Green bars mean the current AO value is higher than the previous one — momentum is increasing.
• Red bars mean the value is lower than the previous one — momentum is slowing.

It is not a standalone buy/sell tool but a momentum gauge that works best when paired with other analysis methods.
 

How the Awesome Oscillator Works in Trading

The AO compares two simple moving averages (SMAs) of the median price:

• SMA(5) – short-term momentum.
• SMA(34) – long-term momentum.

When the short-term SMA is above the long-term SMA, the AO value is positive, signalling bullish momentum. When it is below, the AO is negative, indicating bearish momentum.

Suppose you’re tracking Infosys on a daily chart. The AO has been above zero for a week, with mostly green bars. This suggests buying strength is still in control. But if those bars start turning red while remaining above zero, it’s a sign that the momentum may be weakening — a signal to watch closely if you’re holding long positions.
 

Formula of Awesome Oscillator

The calculation is simple:

AO = SMA(5) of Median Price – SMA(34) of Median Price

Where:

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

Positive AO = bullish momentum.
Negative AO = bearish momentum.
 

Example Scenario to Make the Calculation Easy to Grasp

Let’s take Tata Motors as an example:

Step 1: Find the median price

If the most recent candlestick has:
High = ₹760, Low = ₹740
Median price = (760 + 740) / 2 = ₹750
 

Step 2: Calculate SMA(5)

Suppose the last five median prices are ₹750, ₹752, ₹755, ₹748, ₹749.
SMA(5) = (750 + 752 + 755 + 748 + 749) / 5 = ₹750.8
 

Step 3: Calculate SMA(34)

Assume the average of the last 34 median prices = ₹745.5
 

Step 4: Subtract the two

AO = 750.8 – 745.5 = 5.3
Since this is positive, short-term momentum is stronger than the long-term trend — a bullish reading.
 

Trading Strategies Using the Awesome Oscillator

The AO can be applied in different ways, depending on the trader’s style.

1. Zero Line Crossover  

When the AO moves above zero, short-term momentum has shifted bullish. When it moves below zero, momentum has turned bearish.

• Example: In Nifty 50, a zero line crossover above zero after a correction may signal the start of another upward leg in the trend.

2. Twin Peaks  

This method looks for two peaks on the same side of the zero line:

• Bullish pattern: Two peaks above zero, with the second higher than the first.
• Bearish pattern: Two peaks below zero, with the second lower than the first.

Example: In HDFC Bank, if two peaks form above zero and the second is higher, it can indicate renewed buying pressure after consolidation.
 

3. Saucer Setup  

The saucer pattern captures quick shifts in momentum:

• Bullish saucer: AO remains above zero but shows two consecutive red bars, followed by a green bar.
• Bearish saucer: AO remains below zero but shows two consecutive green bars, followed by a red bar.

Example: In Reliance Industries, a bullish saucer above zero could signal a short-term buying opportunity before the next price push.
 

4. Using AO with Other Indicators  

In choppy markets, AO alone can give false signals. Combining it with:

• Support/resistance zones for context.
• MACD for trend confirmation.
• Volume analysis to verify strength behind moves.

Example: In ICICI Bank, a bullish AO crossover supported by rising volume and a breakout above resistance is more reliable than the AO signal alone.
 

Limitations of the Awesome Oscillator

Even though the AO is versatile, it has drawbacks:

• Lagging in Nature: It’s based on moving averages, so it reacts after price changes occur.
• False Signals in Sideways Markets: During consolidation in Nifty or Bank Nifty, AO may flip between red and green without a real trend change.
• Needs Confirmation: AO should always be cross-checked with price action and other indicators.
   

Conclusion

The Awesome Oscillator is a simple yet effective momentum indicator that compares short-term and long-term price movement using the median price. In Indian markets, it can help traders identify potential continuation or reversal points in stocks, indices, and commodities.

By applying strategies like the zero line crossover, twin peaks, and saucer setup — and confirming them with other technical tools — traders can use the AO to strengthen their analysis. Like all indicators, it’s not foolproof, but in the hands of a disciplined trader, it can be a valuable addition to a trading strategy.