How to Trade Using the Awesome Oscillator and Acc/Dec Indicator
In his book, New Trading Dimensions, Bill Williams sets out his method of trading using these two indicators.
Awesome Oscillator buy signals are created when the indicator:
Crosses from below 0 to above 0
When the oscillator is above the 0 line. The oscillator changes from green (upward movement) to red (downward movement) and back to green again.
When the oscillator is below the 0 line. The oscillator makes a higher low and turns from red to green.
Awesome Oscillator selling signals are created when the above buy signals are reversed.
Acc/Dec Indicator buy signals are created when the indicator:
When the indicator is above the 0 line. The indicator changes from red to green and then has two consecutive green bars.
When the indicator is below the 0 line. The indicator changes from red to green and has three consecutive green bars.
The Acc/Dec indicator sell signals are created when the above buy signals are reversed.
Putting it Together
The next part of Bill William’s trading method is the most interesting to me. He recommends trading aggressively when the market is moving in your favour.
If you have entered a long position based on one of the indicators and the next time period shows both the AO and AC green and also the market has closed higher then you should add to the position. If the following time period also has a green AO, green AC and higher close then you should again add to the position. This process should be continued up to a maximum of five positions.
I like this method because it forces us to be brave when most peoples instinct is to close out the position to protect the profit gained.
The trading strategy of adding to a winning position is the method used by Jesse Livermore in the excellent book, Reminiscences of a Stock Operator. This mindset is summed up in the following quote:
“It took me five years to learn to play the game intelligently enough to make big money when I was right.”
Average Price H4 =(D4+E4)/2
5 period Simple Moving Average I8 =AVERAGE(H4:H8)
34 period Simple Moving Average J37 =AVERAGE(H4:H37)
Awesome Oscillator K37=I37-J37
5 period SMA of Awesome Oscillator L41 =AVERAGE(K37:K41)
Accelerator/Decelerator M41 =K41-L41