Moving Average of Oscillator (OsMA)

FX Strategy Video > Forex Trading Indicators

moving-average-oscillator-osmaThe Moving Average of Oscillator (OsMA), is an indicator that is calculated by taking the difference between a shorter-term moving average and a longer-term moving average. The two most common are the 12 period moving average and the 26 period moving averages. Because of this fact, it is best described as a modification of the classic MACD Indicator. A cross through the zero or center line can be a very simple way to decide if momentum is gaining to the bullish side, or if it is falling to the bearish side. Many traders will use the side of the line that the histogram is on to help them decide which direction they want to be in a particular market.

This indicator can be used to spot divergences as well. A divergence is simply when price isn’t in tune with actual underlying momentum. During divergence, you may have a new high on the price chart, but the OsMa is failing to make new highs.

The idea of the OsMa failing to make a new high can be a representation of the fact that the market is losing momentum, and that the highs could be from light buying volume. This is a sign that perhaps there won’t be conviction to push prices higher. Naturally, divergence can happen in a downtrend as well, meaning that the OsMa fails to make new lows while price does – showing that the sellers are running out of momentum.

Some traders will simply buy or sell depending on what side of the center line, histogram is currently positioned. If the indicator is below the center line, the trader will only look for selling opportunities. If the indicator is above – they will only buy. It should be noted that the indicator can cause issues and get whipsawed during choppy and range bound markets. Because of this, you are advised to use it during a trending environment in most cases.

Published on 17th of June 2011
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