If you are a seasonal trader of any markets such as Forex, Futures, Stocks or Options, you would notice an indicator called Oscillator of Moving Average, also known as OsMA in short. This technical indicator is not very well known or not being used often in this industry. We seldom hear professional traders provide advise of technical usage of this indicator. So, why is it so not popular in the technical indicator field?
What is OsMA?
As we know from its abbreviation being a category of oscillators, it describes the moving average of the market price through its oscillating strength. In simple terms, it is to show how strong the market direction is.
It is derived from the construction of Moving Average Convergence Divergence also known as MACD. However, we won't be able to derive the same OsMA oscillating structure with the use of the conventional MT4 MACD which only has single Signal Line. So, this means we have to look for MACD with two lines which as mentioned, the Signal Line and another is MACD Line. Such indicator is widely available in the MT4 market place and I would recommend using "Tipu MACD" as it is free to use. So, the construction of the OsMA is base upon the difference between Signal Line and MACD Line.
Thus, this could be the reason why OsMA is not very well known as it has been over ruled by the popularity of the mostly used MACD with two lines.
How OsMA is Being Used Effectively?
Whether you are using OsMA or MACD with two lines, both are the same indicator, just for you to know. Since OsMA is an indicator of strength, it helps me to provide insights of the market direction. Be it a bullish trend or a bearish trend. As this outlook of the market is not a short term information, it is best use on H1 chart time frame with Fast EMA setting at 2 and the rest at 200. The Fast EMA at 2 will take in the latest 2 hours to be compared against the overall 200 hours. This will map out the directional strength in a histogram chart.
For my personal point of view, I do not take into consideration of the spike of the histogram being shown. What's important for me in this indicator use case is that, the indicator must be stabilized in either positive phase or negative phase in a long period of time. Still, there will be some drawbacks of using this technique as to reference during time period of December 2018 for EURUSD. During this time, EURUSD is very volatile in H1, but in D1 the price action is stagnant. If 200 SMA is placed in H1, you will just see 200 SMA being a straight line and OsMA will show multiples of phase change at such occasion which defeats its use case.
For my personal point of view, I do not take into consideration of the spike of the histogram being shown. What's important for me in this indicator use case is that, the indicator must be stabilized in either positive phase or negative phase in a long period of time. Still, there will be some drawbacks of using this technique as to reference during time period of December 2018 for EURUSD. During this time, EURUSD is very volatile in H1, but in D1 the price action is stagnant. If 200 SMA is placed in H1, you will just see 200 SMA being a straight line and OsMA will show multiples of phase change at such occasion which defeats its use case.
Not For the Scalpers
Once this OsMA setting indicates positive histogram, it shows a strong bull trend and bear trend if negative histogram shows. Since being said it gives a long term outlook of the market, the setting being mentioned is not suitable for scalpers. Even by reducing the Slow EMA and MACD SMA period setting will not help scalpers to gain any advantage, as this is due to its nature of being a lagging indicator. As normally scalpers would prefer to have their position closed within an hour to less than a day, it is highly not recommended to scalpers as trade position will require to be placed over night and thus overnight swap rate will kill off the profit from such trade.
Day Traders Perspective
One more time that I would like to remind you again that, this indicator is a lagging indicator. Since it is also a strength indicator, DO NOT ASSUME that once OsMA changes from positive phase to negative phase, it will mean that the market is heading bearish. Being a day trader means we must learn how to be patient and not to be fooled by the market reactions. A change in the indicator phase could turn out to be a false alarm. To confirm that if the market is turning to bearish trend, the OsMA negative phase indicator MUST retained its strength at least for one day. Below chart shows how a false alarm would look like. The market has decided to continue with bull trend with supporting confirmation using trend line analysis.
Trend Line Analysis
By pulling a trend line to fit the bottom last lower low and higher low, you will see that the recent higher low is rejected hence the support of this trend line becomes valid. One confirmation of this analysis will not be sufficient, so lets continue to the second one. By pulling the second trend line from the top last higher high and lower high, the current price has breakthrough this trend line making this resistance trend line to be invalid.
The reason that I do not show the trend line in the chart below is to trigger your doubt. At least, you will do some self study by opening up your MT4 platform and start doing technical analysis base on our above discussion. If you are not doing this, I am very sure that you are not for the interest in trading but just looking for some get rich quick method through Forex. Too bad that there are no such thing as get rich quick in Forex, honestly. Also, I would like to take this chance to let you know that, people like to rely on easy stuffs like installing Expert Advisors, EA, into their MT4 trading platform and expect to get passive income month by month. Yet another hard truth is that, EA lack of organic reasoning and totally base on technical calculation. There is no way you can use technical calculation to derive human emotion in the market!
 |
| The period separator shows a one day period across the H1 chart time frame. Period separator can be made accessible by going to the chart properties window. Right click on the chart in MT4 to find 'Properties' at the bottom of the pop up menu. |
Where to Set Entry and Exit Points
In general rule of thumb, as the last candle stick closes above the resistance line, taking that the above discussion as an example, a buy entry is valid. However, to determine how far the market will go for a good sum of profit, that will require another set of technical indicator tools to define.
The second rule of thumb as a trader is that, know how to cover your backside, being able to manage risk in your trade positions which 90% of retail traders lack of.
The 17 Proven Currency Trading Strategies by Mario Singh is one of an eye opener for me to improve my trading style by going through the "Trader Profile Test". In another words, if you DO NOT KNOW whether you are a scalper, day trader or a swing trader, you will want to take the test to define what kind of trader you are.
Besides that, this book also teaches you Forex hedging strategies used by many professional traders at multinational corporations.
Besides that, this book also teaches you Forex hedging strategies used by many professional traders at multinational corporations.
