The Awesome Oscillator is a momentum indicator, meaning that it attempts to measure the strength of a price movement.
Awesome Oscillator Formula
The Awesome Oscillator (AO) is calculated as the difference between a fast (5MA) and a slow (34MA) simple moving average applied to the midpoint of the candles. The midpoint of a candle is calculated as (High Price+Low Price)/2.
In the following chart shows these two moving averages plotted on the price chart, along with the Awesome Oscillator histogram plotted below. I have added vertical lines to illustrate how the AO polarity switches based on the relationship of the moving averages. When the 5MA is above the 34MA the histogram is positive, and when the 5MA is below the 34MA the histogram is negative. The height of the histogram bars denotes the distance between the two MAs. An increasing distance between the MAs results in an increasing histogram bar length and may suggest increasing price momentum.
Awesome Oscillator PIN Settings
Signal Mode M1, M5, etc
Allows you to independently select the filtering (Signal Mode) for each of seven time-frames: M1, M5, 15, 30, H1, H4 and D1.
Timeframe disabled (–) do not filter on this timeframe.
(D)irection. Filter based on the direction of the histogram: increasing = buy, decreasing = sell. This is the most responsive mode and may be useful for detecting a change in trend.
(P)olarity. Filter based on the polarity of the histogram: >0 = buy, <0=sell. This mode is more indicative of a confirmed trend, with consequentially more lag.
Direction and Polarity (DP). A signal is given when both Direction and Polarity agree. May be useful for detecting when a trend may be ending (e.g. Exit on signal lost).
Current Bar (dynamic). The signal is based on the current bar/candle. Since this value is changing (repainting) you may get a fluctuating signal, but this may be useful for detecting an early entry, especially when combined with the signal from shorter timeframes.
Closed Bar (confirmed). The signal is based on the last closed candle. Since this value is no longer changing the signal will not repaint, but this can mean that there is more lag in the signal.