MomentumAwesome Oscillator Momentum
Bill Williams' momentum histogram compares a fast and slow average of the bar midpoint; trade its zero cross, saucer, and twin-peaks signals to swing with the momentum of the trend.
Swing tradingIntermediate1h - daily
The idea
The Awesome Oscillator, from Bill Williams, is a momentum histogram built by subtracting a 34-period average from a 5-period average of each bar's midpoint, the average of its high and low. Because it compares a fast and a slow measure of where price is trading, it reveals whether short-term momentum is pulling ahead of the longer-term drift, and it plots that as coloured bars above and below zero. It is conceptually a cousin of the MACD histogram, but it reads the midpoint of the range rather than the close, which some traders feel captures the bar's true balance better. The method trades three classic signals — the zero-line cross, the saucer, and twin peaks — each timing a different momentum shift. Its weakness, like any oscillator, is chop: when the bars are small and alternating there is no momentum to trade, so filtering for real signals is the whole game.
The setup
Plot the Awesome Oscillator in its own pane with the standard 5 and 34 lengths applied to the bar midpoint, and note that the bars are coloured — green when the current bar is higher than the last, red when lower — which is central to reading its signals. Above zero, short-term momentum leads the longer average and the bias is bullish; below zero it is bearish. Watch the size and colour sequence of the bars rather than any single value: expanding bars mean momentum is building, contracting bars mean it is fading. On the price chart, confirm the prevailing trend, since AO works best as a momentum overlay on a directional market. The setup is armed as the bar sequence sets up one of the three signals and triggers when that pattern completes.
Entry
There are three standard long entries. The zero-line cross buys the bar that pushes the histogram from below zero to above, signalling momentum has flipped bullish. The saucer is a faster signal that stays above zero: at least two consecutive shrinking red bars followed by a green bar mark a brief momentum dip that resumes, letting you buy a pullback within an uptrend. Twin peaks below zero — two troughs where the second is shallower and followed by a green bar — flag fading downside momentum ahead of a turn. Each has a bearish mirror, and each should agree with the larger trend; a signal that forms while the bars are minuscule and colour-flipping is noise to skip.
Exit and targets
The cleanest exit is a zero-line cross back against the position, which says the momentum that justified the trade has reversed. Twin peaks on the same side as your trade act as a divergence warning — two momentum peaks with the second weaker suggest the move is tiring even if price still edges your way — and are a cue to tighten or bank profit. Trailing behind each new swing as the bars keep expanding lets a genuine momentum run continue while defining a give-back level. As with most momentum tools there is no fixed target; the histogram's own shape, its expansion and its peaks, marks the natural life of the trade.
Risk management
Anchor the initial stop below the swing low that formed at the entry signal, so the trade is invalidated if that momentum low gives way, then size from that distance to a small fixed account risk. Momentum signals fail in clusters when a market is ranging, so expect strings of small losers and keep each one trivial, leaving the edge to the sustained trends. The requirement that AO bars have real size, and that signals agree with the larger trend, is itself the core risk filter, keeping you out of the chop where these signals misfire most. Never widen the stop because a saucer or cross is still marginally intact — once the signal's low breaks, the reason for the trade is gone.
Best timeframes and markets
As a swing tool the Awesome Oscillator fits the 1-hour to daily charts, slow enough to filter noise and fast enough to catch a momentum leg, and it applies across stocks, futures, and forex. It performs best on instruments that trend and swing cleanly, and worst on rangebound names where the bars endlessly alternate around zero. Higher timeframes give fewer, more reliable signals; lower ones give more trades with more false starts. Because it reads the bar midpoint, it pairs naturally with markets that respect their ranges, and it is most dependable when a clear higher-timeframe trend frames every signal.
Common variations
The most common variation trades the three signals selectively rather than all at once — many swing traders use only the zero cross for trend entries and reserve the saucer for pullback timing within an established move. Some pair AO with a second Bill Williams tool, the Accelerator Oscillator, which measures whether momentum itself is speeding up or slowing, for earlier confirmation. Others overlay a moving-average trend filter so only signals in the trend direction are taken, or use twin-peaks divergence purely as a reversal-warning tool rather than a standalone entry. Tuning the lengths shifts sensitivity, though the 5 and 34 defaults are near-universal.
A worked example
On the daily chart a stock is trending up but has paused, its Awesome Oscillator sitting above zero. Two shrinking red bars print as price dips, then a green bar appears — a textbook saucer above zero within an uptrend. You buy 44.30 with a stop at 42.60 below the swing low of the dip, risking 1.70 and sizing so that is a 1 percent account risk. Momentum reignites and the stock trends to 51 as the AO bars expand green; you trail beneath each higher low. Weeks later the AO crosses back below zero as the trend tires, taking the trailed stop near 49.50, a roughly three-to-one winner earned from a single clean momentum swing.