Awesome Oscillator and MACD Histogram

The Awesome Oscillator and MACD Histogram indicator combines two popular momentum oscillators into a single visual tool to help traders identify the beginning of rapid price movements through divergence analysis.

Usage

The tool is primarily used to spot divergence between the Awesome Oscillator (AO) and the MACD Histogram. Because the MACD's Exponential Moving Average (EMA) typically responds faster to price changes than the AO's Simple Moving Average (SMA), traders can look for specific color-coded overlaps to gauge momentum shifts.

Bullish Signals

• Zero-Line Recovery: A change from red to green below the zero line while the secondary histogram is above zero suggests a potential bullish reversal.
• Momentum Divergence: Rising green bars above the zero line coupled with the secondary indicator remaining below zero can indicate strengthening bullish momentum.

Bearish Signals

• Zero-Line Rejection: A change from green to red above the zero line while the secondary histogram is below zero indicates a potential bearish reversal.
• Momentum Exhaustion: Deepening red bars below the zero line while the secondary indicator remains above zero suggests increasing bearish pressure.

Details

The script calculates the Awesome Oscillator as the difference between a 5-period and 34-period SMA of the median price (HL2). Simultaneously, it calculates the MACD Histogram using the standard difference between the MACD line and the Signal line. To ensure both are visible on the same scale, the MACD Histogram is scaled by a factor of 10. The script highlights momentum by changing bar colors based on whether the current value is higher or lower than the previous bar.

Settings

• AO Fast SMA Length: Sets the period for the short-term SMA used in the Awesome Oscillator calculation.
• AO Slow SMA Length: Sets the period for the long-term SMA used in the Awesome Oscillator calculation.
• MACD Fast EMA Length: Sets the period for the fast EMA in the MACD calculation.
• MACD Slow EMA Length: Sets the period for the slow EMA in the MACD calculation.
• MACD Signal EMA Length: Sets the smoothing period for the MACD Signal line.

FAQ

How do I interpret the colors?

Green bars indicate increasing momentum compared to the previous bar, while red bars indicate decreasing momentum. Darker or lighter shades help distinguish between the AO and the MACD Histogram.

What is the advantage of combining these two?

The MACD often reacts faster to price changes, while the AO provides a smoother representation of trend. Seeing both on one scale allows you to spot leads and lags that suggest upcoming trend changes.

How can I access Awesome Oscillator and MACD Histogram?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.