Tag: Awesome Oscillator

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Forex Basic Strategies

Timing Buying Entries Using Bullish Pennants and Awesome Oscillator

In this article, we paired the Bullish Pennant trading pattern with Awesome Indicator to identify the trading signals. BULLISH PENNANT PATTERN Bullish Pennant is a continuation trading pattern that appears in an ongoing uptrend which used by the traders to predict the upcoming market movements. The pattern is seen when the asset experiences large upward […]

In this article, we paired the Bullish Pennant trading pattern with Awesome Indicator to identify the trading signals. BULLISH PENNANT PATTERN Bullish Pennant is a continuation trading pattern that appears in an ongoing uptrend which used by the traders to predict the upcoming market movements. The pattern is seen when the asset experiences large upward […]

In this article, we paired the Bullish Pennant trading pattern with Awesome Indicator to identify the trading signals.

BULLISH PENNANT PATTERN

Bullish Pennant is a continuation trading pattern that appears in an ongoing uptrend which used by the traders to predict the upcoming market movements. The pattern is seen when the asset experiences large upward moves followed by a brief consolidation, before continuing to move in the direction of the ongoing trend.

Key Characteristics of the Bullish Pennant Pattern

A FLAGPOLE – The pattern always begins with a flagpole which is an indicator of a strong uptrend.

BREAKOUT LEVELS – You will witness the two breakouts level on the pattern, the first one is at the end of the flagpole and another one after the consolidation phase.

PENNANT ITSELF – It is a triangular pattern that appears when the market consolidates between the flagpole and the breakout.

THE IMAGE ABOVE REPRESENTS THE BULLISH PENNANT PATTERN

AWESOME OSCILLATOR 

Awesome is a momentum oscillator developed by the technical analyst Bill Williams to determine whether the buyers or bears are dominating the market. The indicator is used to gauge the market momentum and to affirm the ongoing trend; also, it is used to anticipate the upcoming reversals. Depending on your charting platform, the indicator most often appears in many different formats, but the most common format is the histogram. The indicator fluctuates between the positive and negative territory; A positive reading means the faster period is greater than, the slower ones, and the negative reading the fast is less than the slow.

The image below represents the Awesome oscillator on the price chart.

TRADING STRATEGIES

The image below represents the bullish trend and pennant pattern on the AUDUSD chart. This formation appears on the sixty-minute chart, which mostly used by traders for intraday trading. The awesome oscillator was already above the zero lines, which means the buying momentum is stronger, and the breakout of the pennant pattern was a sign to go long.

The image below represents the pennant pattern on the CADJPY 15 minute chart. This timeframe is also used by traders for intraday trading, in an ongoing uptrend the formation of Pennant and reversal of histogram lines above the zero line was an indication to go long.

Mostly scalpers book the profits with the small price movements, but if they can use the proper trading strategies for scalping, then they can hold their trades for the longer targets. In the image below on a three-minute chart, the prices were in an uptrend, and during the pullback phase we witnessed the pennant formation, and the reversal on the Awesome oscillator confirmed that the breakout is real. Here we book the profits of around the 30 pips in this pair, by just taking the proper trades on the three-minute chart. Sometimes scalpers have no trades in the market, so in these conditions, it is always advisable to follow the proper trading strategies to milk the market.

ENTERING IN A TRADE PRIOR TO THE FORMATION OF THE PENNANT PATTERN

The image below represents the pennant pattern on the sixty-minute chart.

Here in this strategy, we are using the lower line of the pennant pattern to time the market. The lower pennant line is an ascending line, so when the price action touches that line, it never came back to the same price again. In this way, if we bought at every touch of the lower pennant line, we can easily ilk the bigger profits.

In the image below, we mark the pattern on the sixty-minute chart and choose to take the entry on the 15-minute chart. The pair was in an uptrend, and when the price approaches the lower pennant line, at that stage of the market the awesome indicator lines were also declining which is a sign of sellers are no more interested in selling, and going long will be a good idea. Keep in mind in the first trade always risk less money; this is because the sellers are still the dominating force. When the prices failed to break below the pennant line, it means buyers are there, and going big on the second trade will be beneficial. When the second time prices approached the pennant line, the awesome oscillator showing no sign of any sellers even buyers were stepping in, this was the sign for us to go long in this currency. After our entry, we choose to go for a brand new high with the stops just below the first entry.

The image below represents the pennant pattern in the EURNZD forex pair.

The image below represents the buying trade in the EURNZD pair on the daily chart. As you can the currency was in an uptrend and during the pennant formation prices dropped below the lower pennant line with the declining histogram bars. The next green candle immediately came back, which means it was a faker, and there were buyers who exists in the game. We took the entry after the fakeout and were waiting for the prices to go higher once again to take another buying trade, but the price action holds at the lower line which means the buyers were building the order. This consolidation phase at the support level and the green histogram bars on the indicator motivated us to take another long trade. The very next day price action takes off, and we witnessed the brand new higher high.

CONCLUSION

Trading the markets in today’s world is an easy game for those who properly follow the rules and master the well-proven trading strategy. The Pennant is a leading trading tool that appears on all the trading timeframe, you can use the pattern alone but if you desired good risk-to-reward ratio trades then pairing this pattern with another indicator is always beneficial. Keep in mind, the Pennant is a continuation pattern, and it only appears in an uptrend, don’t try to trade the pattern everywhere in this way you will be not able to scale your trades, Instead trade the pattern only in the trending market and when the formation appears to scale your trades every time.

Categories
Forex Basic Strategies

Let’s Learn Some Momentum Trading Techniques Using The Awesome Oscillator

Introduction

Introduction

Introduction

Bill Williams was the one to first developed the Awesome Oscillator, and it essentially indicates the market momentum. On the other hand, RSI (Relative Strength Index) is a trading indicator that provides an idea of the overbought and oversold zone. In the Awesome Oscillator based trading strategy, we will use the Awesome Oscillator to determine the market direction and use the RSI to increase the probability by eliminating unwanted market movements.

The Awesome Oscillator

Bill Williams has created the Awesome Oscillators to identify the market momentum of a currency pair. Besides the forex market, this trading strategy works well in all financial markets, including the stock, indices, cryptocurrencies, and commodities. The elements of this trading indicator are pointed out in the image below.

  • The first element of Awesome Oscillator is the 34 period’s simple moving average indicating the median of the last 34 candlesticks.
  • 5-period simple moving averages indicate the median of the last five candlesticks.
  • Histogram and Zero Line.

Let’s have a look at how these elements represent in a market:

  • When the Awesome Oscillator is below the zero lines, we should focus on the short term moving average. If the 5 SMA moves below the 34 SMA, it will indicate a downtrend.
  • If the position of Awesome Oscillator is above the zero lines, we can consider the trend as an uptrend.
  • If the Awesome Oscillator histogram moves to the green zone, we can consider the candlestick that moved higher than the previous candle.
  • We will consider the histogram at the red zone that is smaller than the previous candlestick.
  • The rules mentioned above are not exact buying and selling signals. Instead, it provides a trading opportunity where traders should consider other confirmations.

We can also identify the divergence between the price and the Awesome Oscillator to find a trading opportunity.

If you see the price of a currency pair to make a lower low from the left side to the right side, but the Awesome Oscillator makes the opposite, you can find a potential divergence. In divergence, the Awesome Oscillator should create two peaks above the zero lines considering the market condition.

Awesome Oscillator with RSI Trading Strategy

In this trading strategy, we will combine the Awesome Oscillator to identify the market momentum and the Relative Strength Index to get the overbought or oversold zone. If we can combine these accurately, we can make a trading strategy that can provide a good profit.

This strategy works very well in most of the currency pairs and time frames. Therefore, we can take swing trade, day trade, and even position trade. Besides the technical formation using these two indicators, we will use price action to enter the trade. Moreover, we will use stop loss and take profit as a risk management tool before taking the trading decisions.

Now let’s move to the trading strategy. In the image below, we can see the visual representation of how to trade using the Awesome Oscillator RSI trading strategy. The rules for buying and selling of a currency pair are mentioned below:

Buy Trade Setup

  • At first, the RSI should be below the 30 levels and point to an upward reversal.
  • When the RSI moves above the 30 levels, we will consider buying signals only if the Awesome Oscillator shows a green bar.
  • When the green bar appears, we can place a buy stop about 2- 5 pips above the current candlestick and allow the price to take our trade automatically.
  • Sometimes RSI might signal 1-2 candlestick later than the Awesome Oscillator. In that case, we can consider trading entry by taking a smaller lot.

Sell Trade Setup

  • At first, the RSI should be above the 70 levels and point to a downward reversal.
  • When the RSI moves below the 70 levels, we will consider selling signals only if the Awesome Oscillator shows a red bar.
  • When the red bar appears, we can place a sell stop about 2- 5 pips below the current candlestick and allow the price to take our trade automatically.
  • Sometimes RSI might signal 1-2 candlestick later than the Awesome Oscillator. In that case, we can consider trading entry by taking a smaller lot.

In this strategy, we did not consider the histogram crossing zero lines. However, suppose you want to increase the probability of your trading. You can look at the zero line cross as a further trading condition that will indicate the overbought and oversold zone.

Stop Loss And Take Profit Idea

The stop loss and take profit idea is a vital element of any trading strategy. There are many ways to set take profit and stop-loss depending on the market swing low and Sewing high. In a buy trade setup, the stop loss should be below the recent swing low with 10 to 15 pips buffer. Similarly, in a sell trade, the stop loss should be above the recent swing high with 10 to 15 pips buffer.

Another idea of a stop-loss plan is to set it at 1.5X ATR. It will indicate the actual volatility of the currency pair that you are trading. Besides the stop-loss setting, take profits can be set with a multiple-level approach. You can hold your position until the Awesome Oscillator crossed above or below the zero lines. Later on, you can monitor the momentum of the price to identify the next take profit level.

Summary

Let’s summarise the awesome oscillator and RSI trading strategy:

  • If the RSI is above the 70 levels and points downward movement, we will consider selling setups only, and if the RSI starts to move from the 30 levels, we will consider buying only.
  • To enter the trade, we can take a pending order above or below the previous candle if other conditions meet.
  • The stop loss should be below the swing low or swing high with some buffer or at 1.5 X ATR.
  • For setting take profit, you can hold the trade until the Awesome Oscillator crosses above or below the zero lines. Moreover, if the market conditions allow you to extend the take profit.

In every trading strategy, trade management is an essential tool that a trader should not ignore. In the forex market, we anticipate the price based on our technical and fundamental analysis. As we trade on probabilities, there will be conditions where the market will hit our stop loss. Therefore, strong trade management is the only way to keep your balance steady growth.

Categories
Forex Basic Strategies

Pairing The Shooting Star With Stochastic & Awesome Oscillators

Introduction

Introduction

Introduction

The Shooting Star is one of the most popular bearish candlestick patterns in the industry. This pattern appears in an uptrend most of the time, and it indicates bearish reversals in the price action of any underlying currency. So basically, when this pattern appears on the charts, it implies that the buyers are exhausted, and its sellers turn to lead the market. Once we have identified the Shooting Star pattern in an uptrend and confirm the trend reversal with any other credible indicator, we should look to open a short position.

This pattern has a unique structure as it consists of a small body and a high upper wick, as shown in the image below. This image accurately represents the trend reversal because we can clearly see the buyers losing momentum and sellers taking over the market.

Trading strategies with the Shooting Star pattern

Shooting Star + Stochastic Indicator

In this strategy, we have paired the Shooting Star pattern with the Stochastic Indicator to identify the trading opportunities. Just like RSI and MACD, the Stochastic Indicator also belongs to the oscillator group. It is developed in the 1950s, and it is still widely used by the traders. The Stochastic indicator oscillates between 0 & 100 levels. When the indicator goes below 20, it means that the currency pair is oversold. Similarly, when the indicator goes above the 100 level, it indicates that the currency pair is overbought.

STEP 1 – First of all, find the Shooting Star pattern in an uptrend.

STEP 2 – Check the Stochastic indicator

Once you find the Shooting Star pattern, the next step is to check the Stochastic Indicator. If the indicator is giving a reversal at the oversold area, it indicates the overbought market conditions.

The image below represents the EUR/USD weekly Forex chart. In this pair, price action was held at a significant resistance area, and it prints the Shooting Star pattern. Also, the Stochastic indicates the overbought conditions. These three clues clearly say that this pair is all set to change its direction. The Stochastic pattern on a higher timeframe has very higher chances to perform. So whenever you find this pattern, and if it supports the rules of this strategy, always trade big.

Step 3 – Stop-loss and Take Profit

A stop loss is specially designed to limit the loss of the trader. So before activating your trade, it is essential to decide where you are going to place the stop loss. In the example above, we put the stop loss just above the Shooting Star candle.

Shooting Star pattern indicates the reversal in price action. This means that we are catching the top of the trend. As the end goal of every trader is to maximize their profits and minimize losses, always try to hold the positions for more extended targets.

In the example, we have closed our position at a higher timeframe support area. We can use the higher timeframe support or look for the Stochastic Indicator to reach the oversold area. Another way to close the position is when the market reaches the major support area while the Stochastic is in the oversold area.

As we can see in the image below, we closed our full position at a significant support area. You can use the Stochastic or any other trading tool to exit your position, but we always suggest to use the considerable support/resistance area to book profits.

Shooting Star Pattern + Awesome Oscillator

In this strategy, we have paired the Shooting Star pattern with the Awesome Oscillator to identify the trading opportunities. The Awesome Oscillator is a boundless indicator. When the Awesome Oscillator reverses below the zero-level, it indicates the buying pressure. When it reverses above the zero-level, it means sellers are ready to lead the market. Furthermore, some traders use this indicator to confirm the strength of the trend. When the indicator goes above zero-level, it means the buying trend is quite strong, and when it goes below the zero-level, it shows the sellers dominating the market.

Step 1 – First of all, find the Shooting Star pattern in an uptrend.

Step 2 – Look for the Awesome oscillator reversal

Once we find the Shooting Star pattern, the next step is to take a sell-entry when the Awesome Oscillator reverses at overbought market conditions.

The image below is the EURUSD 240 chart. On this pair, at first, the buyers were quite weak, and they started holding at the resistance area. Furthermore, in that small range, price action turned sideways, and it printed the Shooting Star pattern. The Awesome Oscillator even reversed at the overbought conditions. Both of the trading tools are indicating the exhaustion of the buyers. And sellers are ready to take over the market.

Step 3 – Take Profit and Stop loss

Every trader has different expectations from the market, some like to trade short term trends, and some like to trade longer-term moves. If you are an intraday trader, then we suggest you close your position when the Awesome Oscillator reverses at the oversold area. But, if you are a swing trader or investor, wait for the opposite pattern (Hammer Pattern) to appear to close all of your positions. We can even use the higher timeframe support/resistance area to close our positions.

We advise you to place the stop-loss order above the Shooting Star pattern. As you can see in the image below, we booked full profits at the major support area. After that, the price action dropped a bit more but reversed immediately to follow the buy direction. It is important not to ignore the higher timeframe support/resistance areas.

The psychology behind the Shooting Star Pattern

At first, we see the buyers enjoying the uptrend as the price of the currency keeps printing brand new higher high. As this euphoric moment begins to set in, the sellers start to sell their positions at higher prices. Now the buyers get panicked, and even they start to sell their positions. Now that the buyers and sellers are both selling their positions, panic is created in the market, which leads to a sharp reversal in price action. Thus a long wicked small body candle appears on the trading charts.

Keep in mind that the Shooting Star pattern is more reliable when it is formed after the three consecutive bullish candles. It creates strong bullish pressure on the price chart, and in such cases, the upper wick of Shooting Star is even longer. It indicates that the price is about to reverse with even more strength.

Bottom line

The Shooting Star is a single candle pattern, and it is the most popular trend reversal pattern in the industry. There is a strong psychological pattern that exists beyond the Shooting Star pattern. When the market is in an uptrend, and when buyers gain exponential strength, most of the traders book the profit, and as a result, the bullish trend loses its strength. This results in sellers sending the price down. Most of the time, the Shooting Star pattern provides the 3:1 risk-reward ratio trades.

We hope you find this article informative. Please let us know if you have any questions regarding the same in the comments below. Cheers!

Categories
Forex Elliott Wave

Elliott Wave Principle – Advanced Concepts – Part 2

Indicators are a useful tool that can aid in supporting the analysis process. In this educational article, we will review the Awesome Oscillator and how it can help us in

Indicators are a useful tool that can aid in supporting the analysis process. In this educational article, we will review the Awesome Oscillator and how it can help us in

Indicators are a useful tool that can aid in supporting the analysis process. In this educational article, we will review the Awesome Oscillator and how it can help us in an Elliott Wave study.

The basics

The Awesome Oscillator (AO) is also known as the Elliott Wave oscillator, was developed by Bill Williams. The AO measures the immediate momentum of the five previous periods, compared with the momentum of the last 34 periods.

The calculation is based on the simple moving average of the midpoint (HL / 2) of 34 periods minus the simple moving average of the midpoint of 5 periods.

Elliott Wave and the Awesome Oscillator

The following chart corresponds to the Johnson and Johnson (NYSE:JNJ) weekly chart. The bullish motive wave started with the August 2015 low at $128.51 per share. From this low, JNJ began to a bullish sequence, which drove it to reach the $148.32 level.


From the AO oscillator, we can recognize the following elements of the price action:

  1. Trend bias: If the trend is bullish, the AO will be positive. If it is bearish, the oscillator will move on the negative side. For our example, the market direction of the range of time studied corresponds to a bullish trend.
  2. Wave three: We can identify wave three with the most prominent distance of the AO. From the JNJ example, we distinguish a wave (3) of Intermediate degree labeled in black. At this point, the stock reached $125.90 per share. After this peak, JNJ started a corrective sequence, and the oscillator began to decrease, even moved in the negative side.
  3. Wave five: In the same way as the third wave, we can recognize the fifth wave watching the AO because momentum follows the dominant trend. However, in this segment, the oscillator shows a divergence between the peaks of waves three and five. In our example, JNJ ended the wave (5) on the half of January 2018 at $148.32 per share. We can observe the bearish divergence between the price and the oscillator.
  4. Corrective waves: We can use the AO to identify corrective waves watching how it decreases against the prevailing trend. From the JNJ chart, the oscillator turns negative when the price develops a retracement.

In summary, the Awesome Oscillator can be a useful tool to complement the EW analysis, especially in wave identification. A divergence involves the exhaustion of the movement, but the price is not compelled to reverse the trend.