Awesome oscillator

Introduced by Bill Williams, the calculation departs from most oscillators in two ways. It is computed on the median price of each bar, the high plus the low divided by two, rather than on the close, and it uses simple moving averages of five and thirty four periods over that median series. The plotted value is the shorter average less the longer one, drawn as a histogram above and below a zero line, with each bar coloured according to whether it is higher or lower than the one before it.

Three readings are conventionally taught with it: the crossing of the zero line, the saucer, in which the histogram changes direction without crossing, and the twin peaks formation. All three come from a single author's trading system and are conventions within it, not independent results, which is worth knowing because they are frequently repeated as though they were established properties of markets.

Structurally it is the difference between two moving averages, so it inherits the lag of both and reports momentum that has already occurred rather than momentum arriving. In a sideways market it oscillates around zero and produces frequent crossings that describe nothing. Practitioners often observe that it is essentially the same construction as MACD computed on the median price with different lengths and no signal line, which is why the two indicators trace similar shapes on the same chart.