Awesome trading with crossover and divergences

This system is based on the Divergence and crossovers of one indicator called “Awesome Oscillator ” or “A.O”. This indicator is free and you will find it in almost all trading platforms, like metatrader. AO Parameters are the defaults. Don’tchange anything. we will only change the colors of the bars to: Value up: Blue – Thick line …. Value down: Red – Thick line. We will use this indicator for: Entry – Exists – Stoploss – Targets. Each one of those elements/steps is “equally” important.

We will use the (1 Hour Candle Chart) for swing (weekly) trading. And the (30 Minutes Candle Chart) for day trading. The AO Indicator in chart above.

When to Enter the market ? (System Setup) To Enter we need to see:

A - The AO moving in THE OPPOSITE direction of the price above.

B - Next , we want to know WHERE the wrong move happened (above or below 0 level) if the divergence happened above 0 level,we always enter short or sell. If the divergence happened below 0 level, we always enter long or buy.

C - Last , we wait until the trend is confirmed by a colored bar (above/below 0 level). Let us talk about each step with some trading examples..

A – Opposite Trends:

Imagine the A.O indicator as a mirror to the price. Both price and A.O indicator create waves... if the price is trendingup, we should see higher highs. and if the price is trending down, we should see lower lows.

but sometimes, the indicator and the price … go in different – opposite –directions. that means, while the price is trending up and making higherhighs ... the AO indicator is trending down and making lower lows.This Pattern happens – most of the time – when there is areversal of trend. meaning, this pattern can be used to predict future reversals of the trend.

This system is NOT a trend follower system. it’s a reversalprediction system. and while trading “with” the current trend is very common.. trading reversals is very profitable because it’s trading against the crowds, and that’s how pro’s play the game!

B – Where the opposite move happened ?

As a rule, when the move happens below 0 level, it’s an alert for a reversal up signal = the price will go up. When the move happens above 0 level, it’s an alert for a reversal down signal = the price will go down. (The 0 level in the A.O indicator: go to indicator properties, levels, add the 0 number in the level’s filed. Choose the best color for it – white or light gray will look good on a black background chart – and you will see the middle line or the 0 level)

C – Bar Confirmation

Before we enter the trade, we must see a confirmation signal. If the original signal is up – reversal up alert – we wait to see a blue bar above 0 level. If the original signal is down – reversal down alert – we wait until we see a red bar below 0 level. We enter after the bar is formed and the next bar is started. We do not enter while the bar is still active. So, when to enter the market and open a trade ?

A - The AO moving in THE OPPOSITE direction of the price above.

B - Next, we want to know WHERE the wrong move happened (above or below 0 level) if the divergence happened above 0 level, we always enter short or sell. If the divergence happened below 0 level, we always enter long or buy.

C - Lastly, we wait until the trend is confirmed by a colored bar (above/below 0 level). Let us see how all that looks like on the chart. Next, is a trading example with all the above 3 steps in action!

Let us see what happened to this trade (GBP/USD – 1H):

We saw an opposite AO trend above 0 level. reversal down alert. We waited for a red bar below 0 level. Once the bar was formed, we entered and opened and sell order.

This is very important, we do not enter the market right after the trend, we wait until we see a bar signal to confirm the new reversal alert. This confirmation is the best time to enter the market.

In the example below, the time between the trend and the signal was 3 days !

That means, we didn’t close the last trade instantly after we saw a new AO trend.

We waited for 3 days to see an entry signal.

In this example , the new trend was an UP Trend. We waited for confirmation from a blue bar above 0 level.

Golden Rule: ‘Cut your losses short – Let your profits run’ We are going to work by this rule to set our Stoploss and Targets. Stoploss for this system is the last resistance (when you Enter Sell) And the last support (When you Enter Buy).

Targets: keep the trade open until you get an opposite signal! What happens if the stoploss was hit?

That means it’s a false signal, you can re-enter the market based on the last valid signal. Example: if the last valid signal was Up (Buy Signal), and you got a sell signal that hit stoploss, re-enter the market anytime you see a red bar (in the OA indicator) below 0 level. your new stoploss is the

last support level. If the last signal was a Sell signal, and you got a buy signal that hit stoploss, re-enter the market again whenever you see a blue bar (in the OA indicator) above 0 level . your new stoploss is the last resistance level (to entry point).

The Above Example shows the stoploss level. Please take some time to demo trade this system before you jump to a real account! This system very easy (a 10 years old child could use it with great results) and it’s very powerful in the short and long run. But it’s always a wise idea to test things out, specially if your hard earned money is at risk.

Trading is all about trust, you must trust the system to be able to use it in trading. The first step to build this trust, is to demo trade the system… next, invest little money to get the “trading live” experience. From the results of those two steps, you will know what to do next! Now, Let us take a look at another Trading Example .

Below is the USD/CHF – 1H chart – Oct/2008 We can see a clear UP Trend, followed by a BUY SIGNAL (blue OA bar above 0 level).

So, we Entered the market (Buy order) and set our stoploss at the last support level.

For trades that last for more than one trading day, it’s always a good idea to use trailing stoploss. That way… you set it and forget it!

Remember: if the divergence happened above 0 level, we always enter short or sell.

If the divergence happened below 0 level, we always enter long or buy. regardless of the direction. The direction of the OA trend is only for visual guidance. Next step, we wait for a confirmation bar. Last step, we set our stoploss and trailing stops.

That’s it, and that’s all there is to it!

Some times, you may see a flat tops or bottoms, in the OA indicator, while the price is trending up or down. this is a valid divergence.. if this happened above 0 level, wait for a confirmation bar to enter sell. if it happened below 0 level, wait for a confirmation bar to enter buy. The same rules if the price made a flat double tops or double bottoms , while the OA indicator is trending up or down.