AO measures the market’s momentum and calculates the difference of a 34 period and 5-period simple moving Averages. The generated values are plotted as a histogram of red and green bars. A bar is green when its value is higher than the previous bar. A red bar indicates that a bar is lower than the previous bar.
There are 3 buy and 3 sell signals by AO. The indicator provides clear signals for entering the market. However, for more successful trading it is better to use additional methods of technical analysis such as Fractals. The basic rules are
Buy when AO is above zero and sell when AO is below zero.
Place a pending “Buy” order above the candlestick which corresponds to the first green bar on the AO histogram.
Place a pending “Sell” order below the candlestick which corresponds to the first red bar on the AO histogram.
1) SIGNALS TO BUY
AO “Buy” signal is generated when the histogram which is above the zero line changes its direction from falling to rising. In this case histogram “A” bar, of any color, should be higher than the histogram “B” bar. The histogram “B” bar must be red. The histogram “C” bar must be green.
Once the signal has been generated, place a “Buy” Stop one tick above the price bar. The most recent buy signal cancels all previous ones.
2) SIGNALS TO SELL
AO “Sell” signal is the opposite of the AO buy signal. This signal is generated when the histogram that is below the zero line changes its direction from rising to falling. In this case, the histogram “A” bar, of any colour, should be lower than the histogram “B” bar. The histogram “B” bar must be green. The histogram “C” bar must be always red. Once the signal has been generated, place a Sell Stop one tick lower than the low of the price bar. The most recent sell signal cancels all previous ones.
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