The difference between a 5-period and 34-period average of the bar's midpoint, plotted as a simple histogram — Bill Williams' momentum read, with three distinct signals built into one unbounded oscillator.
American trader, author, and trading psychologist Bill Williams described the Awesome Oscillator in "New Trading Dimensions," built to compare recent price action against a longer historical context.
AO shipped alongside Williams' Alligator, Fractals, and Market Facilitation Index, all rooted in his chaos-theory approach to markets.
Traders formalized three distinct readings from the same bars: the zero-line cross, the saucer, and twin peaks.
Still shipped in the default "Bill Williams" folder on most platforms, valued for its unbounded, purely price-based simplicity.
AO = SMA5 of (H+L)/2 minus SMA34 of (H+L)/2; a bar prints green when higher than the prior bar, red when lower — regardless of which side of zero it's on.
Zero-line cross confirms a real trend change (slow); saucer signals continuation; twin peaks warns of reversal.
Unlike RSI or Stochastic, AO has no fixed 0–100 range — the value only means something relative to itself, over time.
Mid-run, two declining bars above the zero line were followed by a rising one — a textbook saucer, and the uptrend simply continued.
Above the zero line, a second peak printed noticeably lower than the first, followed by a red bar — twin peaks, ahead of the actual reversal.
AO is below the zero line, but the most recent bar is green (higher than the last one). A trader says "green means buy." Sound?
A saucer forms above the zero line inside an already-established uptrend. A trader treats it as a brand-new reversal signal. Sound?
A trader waits for AO to reach "80," the way they would with RSI, expecting a fixed overbought signal. Sound?
The histogram, watched bar by bar on the left — and the mark it leaves in the ledger on the right. A confirmed saucer, a confirmed twin peaks — and the slow, final zero-line cross.
Read the bars, then call it: a saucer (continuation), or twin peaks (reversal)?
The classic error is treating all three signals as one generic "buy/sell." The discipline is mechanical: know whether you're reading a continuation or a reversal signal, and let the slower zero-line cross serve as your final confirmation.
Two moving averages of a simple midpoint, subtracted, give traders three genuinely distinct readings from one elegant histogram — but only real discipline keeps continuation, reversal, and confirmation from blurring into one generic signal.
"The best momentum indicator... as simple as it is elegant."