Oscillator of a Moving Average (OsMA) – Main Features

The OsMA (Moving Average of Oscillator) is a technical analysis indicator that measures the difference between an oscillator (usually the MACD) and its signal line (usually a moving average of the MACD).  The traditional OsMA is usually derived from the MACD (Moving Average Convergence Divergence) indicator, which is itself a widely used momentum indicator, but other oscillators can also be used instead of the MACD.

The MACD indicator measures the difference between two moving averages of a security’s price, typically the 12-period and 26-period exponential moving averages. The OsMA oscillator takes this concept one step further by calculating the difference between the MACD line and its own signal line, which is usually a 9-period exponential moving average of the MACD line. The result is a histogram that represents the difference between the MACD and its signal line.

The OsMA oscillator is used to help identify the strength of a trend and potential trend reversals. When the histogram bars are above the zero line, it indicates bullish momentum, while bars below the zero line indicate bearish momentum. The height of the bars is also significant, as a taller bar indicates stronger momentum.

Another of the most common uses of the OsMA oscillator is to identify divergences between the oscillator and the price of the security. A bullish divergence occurs when the price of a security is making lower lows, but the OsMA histogram is making higher lows. This can indicate that bearish momentum is slowing and that a trend reversal may be imminent. Conversely, a bearish divergence occurs when the price of a security is making higher highs, but the OsMA histogram is making lower highs, which can indicate that bullish momentum is slowing and that a trend reversal may be imminent.

Traders can also use the OsMA oscillator to confirm trend changes. When the histogram bars cross above the zero line, it can be a signal to go long, while a cross below the zero line can be a signal to go short. Traders may also use the height of the bars to confirm the strength of a trend.

Like any technical analysis tool, the OsMA oscillator is not foolproof and should not be used in isolation. Traders should always use multiple indicators to confirm trends and potential trades, and should also be aware of market conditions and other factors that may influence price movements.

OsMA Oscillator
GBP/USD Daily chart with the OsMA oscillator

How is calculated the OsMA Oscillator

The OsMA indicator is calculated by taking the difference between the MACD line and the signal line, which are both calculated from exponential moving averages of the price. Here are the steps to calculate the OsMA:

  1. Calculate the MACD line: The MACD line is calculated by subtracting the 26-period exponential moving average (EMA) of the price from the 12-period EMA of the price.
  2. Calculate the signal line: The signal line is a 9-period EMA of the MACD line.
  3. Calculate the OsMA: The OsMA is calculated by subtracting the signal line from the MACD line.

The resulting OsMA value can then be plotted as a histogram, with positive values indicating bullish momentum and negative values indicating bearish momentum. The height of the histogram bars indicates the strength of the momentum. Traders often use the OsMA in conjunction with other technical analysis indicators to identify potential trading opportunities.

OsMA oscillator settings
OsMA oscillator settings

What are the trading signals of OsMA indicator?

The OsMA (Moving Average of Oscillator) indicator generates trading signals based on the interaction between the oscillator and its signal line. Here are some of the most common trading signals generated by the OsMA indicator:

  • Bullish Signal: A bullish signal is generated when the OsMA oscillator crosses above its signal line. This indicates that the bullish momentum is increasing and can signal a potential long position.
  • Bearish Signal: A bearish signal is generated when the OsMA oscillator crosses below its signal line. This indicates that the bearish momentum is increasing and can signal a potential short position.
  • Divergence Signal: A divergence signal occurs when the price of a security is making a new high or low, but the OsMA oscillator is not confirming it. This can signal a potential trend reversal and can be used to enter or exit trades.
  • Zero Line Crossover Signal: When the OsMA oscillator crosses above the zero line, it can indicate a potential change in trend direction from bearish to bullish. Conversely, when the OsMA oscillator crosses below the zero line, it can indicate a potential change in trend direction from bullish to bearish.
  • Height of Histogram Bars: The height of the histogram bars in the OsMA indicator can also be used to generate trading signals. A taller bar indicates stronger momentum, while a shorter bar indicates weaker momentum. Traders can use this information to confirm signals and identify potential trading opportunities.

It is important to note that the OsMA indicator should not be used in isolation, and traders should use additional analysis and indicators to confirm signals and identify potential risks. Additionally, traders should always practice risk management techniques and use proper position sizing when entering trades based on signals generated by the OsMA indicator.

OsMA Indicator: Strengths and Weaknesses

The OsMA (Moving Average of Oscillator) indicator is a popular tool among technical analysts and traders for identifying trends and potential trading opportunities. Like any technical analysis tool, the OsMA indicator has its strengths and weaknesses, which traders should be aware of before using it.

Strengths:

  1. Identifying Divergences: One of the primary strengths of the OsMA indicator is its ability to identify divergences between the oscillator and the price action. Divergences can signal potential trend reversals, and traders can use this information to make informed trading decisions.
  2. Confirmation of Trend Changes: The OsMA indicator can also be used to confirm trend changes. When the histogram bars cross above or below the zero line, it can indicate a potential change in trend direction. Traders can use this signal to enter or exit trades, depending on their strategy.
  3. Measuring Momentum: The OsMA indicator measures the momentum of a security, which can be useful in determining the strength of a trend. A taller histogram bar indicates stronger momentum, while a shorter bar indicates weaker momentum.

Weaknesses:

  • Lagging Indicator: Like many technical indicators, the OsMA indicator is a lagging indicator, which means it may not always provide a timely signal. Traders may need to use other indicators in conjunction with the OsMA to confirm trading signals and identify potential opportunities.
  • False Signals: The OsMA indicator can sometimes generate false signals, particularly in choppy or volatile markets. Traders should be cautious when using the OsMA in these market conditions and use additional analysis to confirm signals.
  • Not Suitable for All Securities: The OsMA indicator may not be suitable for all securities, particularly those that are highly volatile or have low trading volumes. Traders should test the OsMA on different securities and timeframes to determine its effectiveness.

In conclusion, the OsMA indicator is a useful tool for identifying trends and potential trading opportunities. However, traders should be aware of its strengths and weaknesses and use additional analysis to confirm signals and identify potential risks. With careful use and testing, the OsMA indicator can be an effective tool in a trader’s arsenal.

With which indicators can we combine the OsMA oscillator?

The OsMA (Moving Average of Oscillator) indicator is a versatile technical analysis tool that can be used in combination with other indicators to confirm signals and identify potential trading opportunities. Here are three indicators that traders can use in combination with the OsMA oscillator:

  1. Moving Average: The moving average is a popular technical analysis tool used to identify trends and support and resistance levels. Traders can use the moving average in combination with the OsMA oscillator to confirm signals and identify potential trading opportunities. For example, if the OsMA oscillator generates a bullish signal and the price of a security is above its moving average, traders may consider entering a long position.
  2. Relative Strength Index (RSI): The RSI is a momentum oscillator that measures the strength of a security’s price action. Traders can use the RSI in combination with the OsMA oscillator to confirm signals and identify potential trading opportunities. For example, if the OsMA oscillator generates a bullish signal and the RSI is also showing bullish momentum, traders may consider entering a long position.
  3. Bollinger Bands: Bollinger Bands are a technical analysis tool that measures the volatility of a security’s price action. Traders can use Bollinger Bands in combination with the OsMA oscillator to identify potential entry and exit points. For example, if the OsMA oscillator generates a bullish signal and the price of a security is touching or breaking through the upper Bollinger Band, traders may consider entering a long position. Conversely, if the OsMA oscillator generates a bearish signal and the price of a security is touching or breaking through the lower Bollinger Band, traders may consider entering a short position.

It is important to note that traders should use additional analysis and indicators to confirm signals and identify potential risks. Additionally, traders should always practice risk management techniques and use proper position sizing when entering trades based on signals generated by the OsMA indicator and other indicators.


 

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