Awesome Oscillator - AO is a technical indicator created by Bill M. Williams. AO provides traders with current market momentum. AO also has similarities with MACD, because AO is also formed using the difference between the 2 moving averages, SMA 34 and SMA 5.

The AO indicator is displayed as a histogram. There are 2 colors, green indicates a stronger market trend, while red indicates a stronger market decline. As shown below:


The main roles of an oscillator are

There is 4 main information that the Ao indicator can provide to traders including:
  1. The color change on the AO oscillator indicates a change in the price direction.
  2. When the AO indicator crosses the zero line, it shows a change in market momentum. When the indicator goes above 0, it shows that the market has turned up and vice versa, when the indicator cuts below the zero lines, it shows that the market is going through a downtrend.
  3. The AO indicator is also used to determine signal divergence and convergence. When the price makes a higher high or a lower low, you should check the AO indicator, if AO is also making a similar low, then momentum is supporting price action. Otherwise, they indicate that the price creating this bottom is not supported by the momentum, or in other words, the momentum is weakening. And this is a sign of a potential trend change, also known as a divergence. A divergence can cause a correction then continue in the main trend or it's a reversal signal. As shown above. Divergence can appear continuously, or appear two or three consecutive times before the market actually reverses.
  4. This indicator can also be useful for Elliot wave counting. At the end of wave 1, AO is usually close to zero. During the correction of wave 2, the histogram on the AO will usually correct, but this correction is very light. Wave 3 will have a very strong momentum that pushes AO to cross the top of wave 1. Wave 4 will see AO return to the zero lines. In wave 5, the Ao indicator goes in the same direction as wave 3, but momentum has weakened. In this case, there is often a divergence. 
As shown below:

Above is the information that the AO oscillator also provides to the trader, and we can apply them to the trading process. In addition, the AO indicator is also used in many strategies such as multi-timeframe trading strategies, pullback strategies, or breakout trading.

Summarizing the main roles AO indicator provides to traders, it is that AO mainly provides information about price momentum. Momentum information tells traders about a continuation or trend reversal signal based on divergence and convergence signals. Momentum also provides us with information about trend changes based on zero crossings. These are the main roles, and if you make good use of this information, they can help you trade signals. much more fruit.

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