The Awesome Oscillator was created by Bill Williams, and you have probably heard this name before on this channel, because some of the useful indicators we have tested on the Trading Rush channel, were created by Bill Williams. The alligator indicator was one of them, and it is one of the most useful indicators to identify the trend. Awesome Oscillator is used to find the trend direction and the possible reversal points. It uses the simple moving averages to calculate its values, and calculates the difference of a 34 and 5 period Simple Moving Averages, but here’s a twist. Unlike the usual simple moving averages where values are calculated using the closing price of the candles, simple moving averages in the awesome oscillator uses the mid point of the candle to calculate it’s values.

 

This is how the Awesome Oscillator looks like on the TradingView Platform, and since the awesome oscillator is an oscillator, it oscillates between values that are above and below the zero line. At the first glance , an Awesome Oscillator looks very similar to the histogram of the MACD indicator. So will it work as good as the MACD strategy? In the Awesome Oscillator, a green bar appears if the value is higher than the previous value. And a red bar appears if the value is lower than the previous value. So when the Awesome Oscillator value is below the zero line, it indicates a downtrend. And if the Awesome Oscillator value is above the zero line, it indicates an uptrend, Simple as that.

 

Now, there are 3 popular trading strategies that are based around the Awesome Oscillator. In this video, the strategy that I have tested 100 times, is called the zero line cross. As you can tell by the name, this Awesome Oscillator Trading Strategy is really simple. The entry signal in the strategy is generated using the zero line of the Awesome Oscillator. The Buy signal is when the awesome oscillator crosses above the zero line, and the sell signal is when the awesome oscillator crosses below the zero line. Pretty straight forward, but if you have been watching the Trading Rush Channel for a while, you know that pretty straight forward strategies like these are not that good on their own, because they don’t consider the long term trend direction. So we will use the 200 exponential moving average with the awesome oscillator, to make sure we take entry signals only in the direction of the long term trend direction.

 

So here’s how the modified awesome oscillator trading strategy goes. The long entry signal is when the awesome oscillator crosses above the zero line, only if the entry candle is above the 200 period moving average. And the short entry signal is when the awesome oscillator crosses below the zero line, and if the entry candle is below the 200 period moving average. In this example, price was above the moving average which indicates an uptrend. In this uptrend, the awesome oscillator crosses above the zero line, so the long entry is at the closing price of the candle, and stop loss is below the pullback. In this short example, price was below the moving average which indicates a downtrend. And in this downtrend, the awesome oscillator crosses below the zero line, so the short entry is at the closing price of the candle, and stop loss is above the pullback of the trend.

 

So I tested the Awesome Oscillator, Zero Line Cross Trading Strategy 100 times, here’s what I found out.

 

Number 1. Now I test and have tested many different trading strategies on the same pair and on the same timeframe. Furthermore, I use the same 1.5 to 1 reward risk ratio, so when I test a new strategy, it is tested in almost the same market structure and conditions as the previous strategy. In the last testing video, I tested the fractal breakout strategy. Now, both the awesome oscillator, and the fractal breakout strategy, took their first few trades when the price was in a strong long term uptrend. If you look at the profit graph of the fractal trading strategy in the Trading Rush App, you will see that it went up, which means that the entry signals given by the fractal indicator were profitable. But if you look at the profit graph of the awesome oscillator in the Trading Rush App, you will notice that the awesome oscillator didn’t make much money in the same uptrend. Furthermore, the profit line instead of going up, went down. Why the awesome oscillator couldn’t make money like the fractal breakout strategy, even though the market conditions were almost the same? Well, while testing, I noticed that the awesome oscillator gives entry signals way too late. When I say way too late, I’m not exaggerating, because while testing, I realized that Awesome Oscillator gives entry signals similar to MACD trading strategy.

 

So I tested the MACD strategy 100 times, again, in the same market conditions, but this time, I didn’t follow all the MACD rules that I mentioned in the previous MACD videos. And after testing the MACD strategy in the same market conditions like the awesome oscillator, the MACD got a win rate of approximately 60 percent, whereas Awesome Oscillator only got a win rate of approximately 42 percent. MACD, without following all of its rules, still managed to get a win rate of 60 percent. Just don’t focus on the profit graph of the MACD this time, because I added trades in bulk to make testing faster. But after testing both MACD and Awesome Oscillator on the same market structure, I found out that the Awesome Oscillator gives way to late entry signals than the MACD signals. Just look at this example. Here, price is in a downtrend, but MACD and the awesome oscillator, give entry signals at very different points. One is way too late than the other. Because of the late signals, the probability of price reaching the 1.5 to 1 reward risk profit target becomes lower. Now one can say, if the price can’t reach the 1.5 to 1 reward ratio profit target easily, why not reduce the size of the stoploss, that way, we can achieve a good reward risk ratio even if the price makes a small move. Setting a smaller stop loss using the ATR indicator can be a good idea, and it can increase the win rate of this strategy, but the fact still says that the entry signals given by the awesome oscillator are late. Since there is a big difference between a 42 percent win rate, and the 60 percent win rate, you are always better off with a strategy that gives more than 60 percent win rate even with a 1.5 to 1 reward risk ratio.

 

In the Trading Rush App, the awesome oscillator didn’t make much profit, it got more losers in a row than the number of winners it got in row, and the profit graph also doesn’t look that good compared to some other trading strategies we have seen on the Trading Rush Channel. For example, here’s the profit graph of the original MACD strategy that followed all the MACD rules, as you can see, this is more consistent than the awesome oscillator achieved here. But, that’s just the zero line cross strategy. It made money in the end, but not like some other indicators. In the future videos, we will test the two other strategies that are also based on the Awesome Oscillator.