How to use the Awesome Oscillator in algorithmic cryptocurrency trading bots

Thu May 25 2023

The Awesome Oscillator could is a good momentum indicator that can be incorporated into your algorithmic cryptocurrency trading strategy for swing trading or trend reversal. Read more.

What are algorithmic cryptocurrency trading bots?

Cryptocurrency trading bots are automated software that helps in trading cryptocurrencies without human intervention. They are programmed to analyze market data, execute trades, and make profits based on predefined strategies. Trading bots can work round the clock, which is a significant advantage, considering cryptocurrency markets operate 24/7. Those can be manually building using programming, or built using an intuitive interface using a an algorithmic cryptocurrency trading platform such as Æsir

There are many advantages to using a crypto trading bot. Firstly, they eliminate the emotional aspect of trading, which can often lead to rash decisions. Bots strictly follow the predefined strategies, which ensures consistency in trading. Secondly, trading bots are capable of processing vast amounts of data in fractions of a second, which is humanly impossible. They can react to market changes instantly, giving them an edge over manual trading.

What is the Awesome Oscillator

The Awesome Oscillator (AO) is a momentum indicator developed by Bill Williams that compares recent market momentum to historical momentum to identify potential bullish or bearish market conditions. It uses simple mathematical calculations based on the median price and two different Simple Moving Averages (SMA) of the last 5 and 34 periods.

When the AO crosses above the zero line, it indicates bullish momentum, and it’s typically a buy signal. When the AO crosses below the zero line, it shows bearish momentum, which is generally a sell signal. Two consecutive green bars also indicate a buying signal, and two consecutive red bars indicate a selling signal.

Implementing the Awesome Oscillator in a Cryptocurrency Trading Bot

Implementing the Awesome Oscillator in a trading bot requires setting the algorithm to track the moving averages and calculate the oscillator value. When the value crosses the zero line or produces two consecutive bars in either direction, the bot will execute a trade.

Here is a basic pseudocode structure of how you can implement the Awesome Oscillator in your trading bot:

Define SMA_short as the 5-period SMA
Define SMA_long as the 34-period SMA
Define AO as SMA_short - SMA_long
If AO crosses above 0 then
BUY


Remember to adjust the parameters of the SMA periods and the quantity to be bought or sold based on your risk tolerance and overall trading strategy.

Tools such as TradingView allow you to programmatically check the value of the Awesome Oscillator indicator, at any given time in order to easily incorporate it into your crypto trading bot. Alteratively, for an out-of-the-box solution, you may use an algorithmic cryptocurrency trading platform such as Aesir. There is no coding involved and you can easily access hundreds of indicators including the Awesome Oscillator.

Building a Strategy Around the Awesome Oscillator

While the Awesome Oscillator can be a powerful tool in a trading bot, it should not be used in isolation. It’s essential to combine it with other indicators and strategies to increase the chances of successful trades.

One commonly used strategy is the ‘twin peaks’ strategy, which involves looking for two peaks on the AO histogram in the same direction, followed by a crossing of the zero line. This can often be a sign of a strong trend in the direction of the crossing.

Another strategy is the ‘zero line crossover’ strategy, which involves buying when the AO crosses above the zero line and selling when it crosses below. This strategy can work well in trending markets but may give false signals in range-bound markets.

Of course this is just an example of how to set it up but not actual strategy that you should follow. Remember to always test your strategies and to use confirmation signals from other indicators when performing technical analysis. Our algorithmic cryptocurrency trading platform, Æsir allows you to easily create trading bots using tradingview indicators, that do all the heavy lifting for you, so you don’t have to define where the buy signal is. Create an account today and get testing.

Conclusion

Using the Awesome Oscillator in an algorithmic trading bot can potentially enhance your trading efficiency and profitability. By taking advantage of this momentum indicator, your bot can automate the process of identifying potential buy and sell signals. However, like all trading strategies, it is not without risk. Ensure that your bot incorporates risk management features and that you thoroughly backtest any strategies before implementing them in a live trading environment. Remember, in the world of trading, there’s no such thing as a sure thing, but with careful planning and diligent strategy, you can tilt the odds in your favour.