Awesome Oscillator. Part 2: strategy and recommendations

In the first part of the article, we showed basic rules of how to make money on binary options using the Awesome Oscillator. In the second we improve the results and give recommendations for trading.

Trading strategies using AO

One of the principles of learning binary options trading says that “one tool cannot be the final factor in making a decision” and addition is necessary for the form of indicators calculating other parameters of the current market. Let's not argue with the theory and show two examples of how to use Awesome Oscillator in complex strategies.

  1. Awesome Oscillator + Accelerator/Decelerator Oscillator (AC)

The combination of two Williams indicators: AO indicates the direction of the trend, AC shows its dynamics.

  • CALL-option: indicator changes colour from red to green, after two green columns and changing AC also to green, open BUY. When both indicators turn red - close position.
  • PUT-option: opposite conditions - AO changes colour to red, open after the second bar. Close to green of AO and AC.
  1. AO + AC + Parabolic SAR (P-SAR)

By oscillators we determine the presence of an entry point, and by trending. P-SAR confirms the medium-term trend and level of optimal expiration time.

As an example of a complex binary options strategy, you can add Parabolic SAR indicator to this scheme – it will determine the medium-term trend and show levels for optimal expiration.

  • CALL-option: zero AO breakout from bottom to top, green AC histogram. Parabolic points above price confirm an uptrend. We close the option when PSAR moves to the opposite side of the chart.
  • PUT-option: conditions opposite purchase.

Important note: strategy normally works only on strong trends, look at Parabolic – further indicator points from the current price, stronger movement.

Recommendations for use...

  • As in any other oscillator, stable profit is possible only if correct settings for a specific asset, timeframe and current market situation. Therefore, when thinking about how signals work for binary options, immediately look for a version of AO in which you can change the values of periods because, since the creation of Williams market indicator, including stock, it has changed a lot.

Moreover, parameters do not have a logical link to external factors, in contrast to same Ichimoku, where the calculation is based on annual (52 weeks), semi-annual (26 weeks) and weekly (7 days) cycles. In Awesome Oscillator, parameters are selected exclusively empirically!

Remember that two moving averages are setup: "Slow" one (base period 34) determines trend direction of working timeframe, and "Fast" one (period 5) is responsible for finding entry points. 

  • It is not recommended to reduce the number of periods for a trend, so as not to fall on the market "noise", but the fast part of AO is adjusted depending on current volatility - more periods for low, less for high.
  • The most reliable binary options signal appear at the intersection of zero levels, so price should actively move within a trend. 
  • Yes, in the "sluggish" market, the AO indicator can show a very reliable "saucer", but in fact, we will have a local price impulse of 10-15 points, on which a lot of not to earn.
  • As the main trading period, use European and American Forex sessions, where impulses of 30-40 points in both directions are common.
  • When they cross, oscillators often fail, so stay out of market or work on a different strategy! 
  • The working timeframe is not lower than M30, binary options guide strongly recommends beginners not to trade below H1. During a long, but "wide" flat, the indicator can give quite reliable signals. So open an option or not?
    • At intervals less than M30 definitely not, in other cases, you can try to trade because on higher timeframes trends are longer without sharp reversals and rollbacks. But there are three mandatory conditions:
    • The flat should be at least 30-50 points;
    • Awesome Oscillator signals only confirm with channel indicators, such as Bollinger Bands: zero level crossing at a bounce from the upper / lower border, a “saucer” for transactions from the midline. 
    • Remember that longer sideways movements, higher the probability of its sharp breakthrough, so do not get carried away with large volumes!
    • “Alligator” is also best suited as a trend indicator, from Bill Williams, who initially assumed that his tools would be used only in combination. Based on this, combinations of default parameters were selected, so try not to depart from "classics".
  • Divergence should be confirmed by volume indicators, even tick ones. When there is multidirectional movement, and dynamics of volumes does not radically change, the most likely free binary signal is false. 
  • This also applies to other AO signals, for example, if the volume of bulls did not increase before breaking through zero to buy, then this is most likely a speculative breakout, which can also quickly turn around. 

Don't forget that we're dealing with Moving Average, which is the most lagging technical analysis tool. Therefore, it will not be possible to enter exactly at the beginning of the trend, but the change in volumes can give a leading signal!

Let's summarize: we can say that in relation to Awesome Oscillator, phrase "Bill Williams' wonderful oscillator" is somewhat exaggerated, the standard version for signal reliability is not higher than the same MACD. But combined with other Williams tools can be a good basis a medium-term strategy for binary options.