In early 2019, the ASX 200 futures were grinding sideways for eleven sessions. Volume was thinning, price action was indecisive, and most indicators were producing noise. The Awesome Oscillator — set to its standard 5-period and 34-period simple moving averages of the bar's midpoint — crossed from negative to positive territory on session twelve. What followed was a clean 4.2% directional move over the next eight trading days. Not magic. Mechanics.

The Awesome Oscillator, developed by Bill Williams, calculates the difference between a 5-period SMA and a 34-period SMA — both applied to the midpoint of each bar, which is (High + Low) / 2. That midpoint focus is deliberate. It strips out gap noise and closing-price bias, giving you a cleaner read of where price actually spent time during the session. The result plots as a histogram, green bars when the current value exceeds the prior bar, red when it doesn't.

CONCEPTAO crosses zero when the 5-period midpoint SMA overtakes the 34-period — momentum has structurally shifted, not just wiggled.
WARNINGA single green bar above zero is not a signal — traders wait for two consecutive green bars after a red pullback inside positive territory.
KEY IDEAThe Twin Peaks and Saucer setups give structure to AO readings — raw histogram colour alone is how beginners get stopped out repeatedly.

Williams formalised three setups using AO. The Zero-Line Cross is the bluntest — momentum shifts when the histogram crosses zero. More refined is the Saucer: three consecutive bars above zero where the middle bar is red and lower than both neighbours, then a green bar confirms. Most refined is the Twin Peaks setup, where two peaks on the same side of zero form with the second peak less extreme than the first — a divergence baked directly into the indicator's own structure rather than compared against price.

Awesome Oscillator — Histogram Example0+−Zero-crossTwin PeaksSessions →

The practical threshold most systematic traders apply: ignore any AO reading where the absolute histogram value is below 0.05% of the instrument's current price — that filters the flat-market clutter Williams himself warned about. For backtesting methodology and indicator construction, the Investopedia entry on the Awesome Oscillator covers the formula cleanly. Williams built AO as part of a broader system outlined in his trading philosophy on Wikipedia, which also included the Alligator and Fractals. And if you want to understand why midpoint-based smoothing behaves differently from close-based SMAs, the Wikipedia article on moving averages gives the mathematical grounding without the sales pitch.

The Awesome Oscillator is not a crystal ball — nothing is. But it is a precisely constructed momentum tool with three well-defined setups, specific bar-colour rules, and a midpoint calculation that filters noise other indicators happily swallow whole.

Use the structure Williams gave you, or you're just watching a coloured histogram and calling it analysis.

This content is for educational purposes only and does not constitute financial product advice. Past performance is not indicative of future results. Profit Logic Ltd (ACN 688 669 936) accepts no responsibility for errors or omissions in this content or anywhere on this website. Always seek advice from a licensed financial adviser before making investment decisions.