Adapting the Awesome Oscillator with a PDF-Weighted Moving Average

Summary

The document explains a variation on Bill Williams’s Awesome Oscillator. The standard indicator subtracts a 34-period simple moving average of bar midpoints from a 5-period simple moving average of the same values, using the midpoint of each bar’s high and low. It is presented as a way to track changes in market momentum.

The variation replaces both simple moving averages with probability density function weighted moving averages. A variance parameter can be adjusted to change the calculation and smoothness: greater variance is described as producing a smoother result. The suggested use is to watch color changes, especially around the zero line, as possible signals of a trend shift. The note offers no backtest, performance evidence, or detailed rules for generating trades, so it does not establish that these signals are predictive or profitable.

Key ideas

• The standard Awesome Oscillator compares 5-period and 34-period moving averages of bar midpoints.
• This variation uses probability density function weighted moving averages instead of simple moving averages.
• Changing the variance parameter changes the indicator’s values and smoothness.
• Color changes near the zero line are suggested as possible trend change signals.
• The document provides no testing evidence or complete trading rules.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.