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The oscillator of moving average (OsMA), also known as the moving average oscillator indicator, is a tool that attempts to identify whether a market is overbought or oversold. How so? By measuring how far an oscillator lies from its moving average. In this article we’ll discuss the calculations behind the indicator, and how you can use the tool in MetaTrader 4.
In the most generic sense, the oscillator of moving average is the difference between an oscillator and its smoothed version. More specifically, the values displayed by the OsMA indicator are most commonly derived from the MACD indicator. To further explain the moving average oscillator indicator, let’s first take a quick look at what the MACD indicator actually consists of.
The MACD (or Moving Average Convergence/Divergence) is itself an oscillator. The main MACD line is the difference between a 12-period exponential moving average (EMA) and a 26-period EMA. The indicator also plots a signal line, which is a 9-period moving average of the MACD value. OsMA is the difference between these two key values of the MACD indicator. To be more exact, it is calculated as the difference between the MACD and the signal line value:
It’s worth pointing out that you don’t always have to use a MACD — you can in fact use any oscillator, applying a basic principle of calculating the OsMA as the difference between an oscillator and its smoothed average. Surprisingly, the most common form of OsMA uses a MACD. As this is the method utilised by MetaTrader 4, this is what we will primarily be focusing on.
Using OsMA Indicator in MetaTrader 4
The Moving Average Oscillator comes as one of the standard indicators bundled with the MetaTrader 4 platform. Remember, the MetaTrader 4 moving average oscillator deals exclusively with the MACD values. If you want an indicator that uses values from a different oscillator, you will have to make a custom OSMA indicator download. The standard indicators that come embedded with MetaTrader 4 are sorted into four basic groups in the platform’s Navigator. These are:
The OsMA indicator is included in the ‘Oscillators’ folder being listed as ‘Moving Average of Oscillator’:
Source: MetaTrader 4 — Setting the parameters for the OsMA indicator in MT4
Clicking on the indicator’s name launches a dialogue window that allows you to set four basic parameters. Three of these are the periods over which the various averages will be calculated. The final choice, ‘Apply to’, defines the type of price value used for the calculations. The image above shows the various choices available, with the default method of ‘Close’ highlighted.
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As you can see, the MetaTrader 4 moving average of oscillator uses a MACD, with a simple moving average (SMA) used for the signal line. The default values for the slow and fast EMAs are standard, and are used in the MACD construction. That is, the fast EMA is set as 12 periods, and the slow EMA, as 26 periods.
As we mentioned before, MACD is the difference between these two values:
- MACD = fast EMA — slow EMA
OsMA then subtracts the signal line (the 9-period SMA of MACD) from this. The image below shows the default values for the OsMA, applied to an hourly EUR/USD chart:
Depicted: MetaTrader 4 — EUR/USD 1 Hour Chart with OsMA indicator applied — Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
You can find the OsMA values plotted beneath the main chart. What are we looking at exactly? Remember, OsMA is the difference between an MACD and a 9-period SMA of the MACD. The extreme peaks and troughs of the histogram mark those times when the MACD has diverged most heavily from its moving average. These are the times when you might expect a greater reversal probability. In addition, there are other trading clues that we can draw from the moving average of oscillator.
Trading with the OsMA Indicator
Generally put, increasing the OsMA values suggests buying pressure in the market, regardless of whether those values are above or below zero. Similarly, declining OsMA levels suggest selling pressure. Equally important, crossing the zero line is a further confirmation of the state of the market. A downward cross is bearish, whereas an upward cross is bullish.
Look out for divergence between the movement of the OsMA, and the movement of price. This is a key sign to help you judge how much conviction to have in a market move. For example, if the market is setting new highs, but the OsMA is failing to do so, or is dropping, we would suggest weakness in the trend. Finally, a change in the direction of the OsMA may indicate a trend change. If the OsMa indicator stops decreasing and instead starts to increase in value, it is more advantageous to be long rather than short.
Forex OsMA Indicator: Strengths and Weaknesses
One of the flaws of the OsMA indicator stems from its inherently heavy use of moving averages — similar to the MACD. This means that it is a lagging indicator. In volatile markets, this will likely hamper your ability to effectively use the indicator. In such conditions, the indicator tends to yield false signals. The indicator can consequently be more useful as a means of confirming shifts in trending conditions.
Please bear in mind that no single indicator can do everything on its own. Each of them will have their own strengths and weaknesses. It is simply unwise to rely solely on the OsMA indicator when making your trading decisions. Be smarter and combine the OsMA with another indicator (or even two), to try and mitigate its weaknesses.
One of the best ways to broaden your arsenal of trading tools is by downloading the free MetaTrader Supreme Edition plugin. MTSE is a plugin for MetaTrader 4 and MetaTrader 5, custom built by market professionals to offer a specially selected suite of cutting-edge tools and indicators. Why not give it a go today and discover the benefits of having a superior selection of tools at your disposal?
Another possibility for improving the effectiveness of the indicator is to look at multiple time frames. This will provide a better overview of what’s going on. Sometimes, simply looking at one time frame may tell a certain story. In turn, looking at longer time frames can help you to understand how this story fits into the larger price patterns of the market.
One of the indicator’s chief advantages is making it easy to visually identify likely oversold or overbought levels. Don’t forget that one of the key skills when trading reversals in overbought or oversold conditions is managing your risk. Why? Because if the reversal fails to materialise, you will end up on the wrong side of a trending market. Thus, make sure to maintain a disciplined approach at all times and cut any losses in a timely manner.
The surest way to find out what works and what doesn’t is to actually give it a try. Obviously, experimenting with real money can become expensive very quickly, which is why testing strategies with a demo trading account is so useful. This allows you to trade live market prices without taking on any unnecessary risk. We hope that this article about the OsMa indicator will give you some trading inspiration.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
Oscillator of a Moving Average — OsMA Definition and Uses
What is the Oscillator of a Moving Average (OsMA)?
OsMA is an abbreviation for the term oscillator of a moving average (MA). The OsMA is a technical indicator that shows the difference between an oscillator and its moving average over a given period of time. The MACD is most common oscillator used in the OsMA indicator, although any oscillator can be used. The MACD has a built-in moving average, which is the signal line. The signal line is an average of the MACD line. The OsMA is the difference or space between these two lines, usually drawn as a histogram. It can provide trend confirmation as well as possible trade signals.
- The OsMA is a combination of an oscillator and a moving average of that oscillator. It measures the distance between these two values.
- The MACD is a commonly used oscillator that has a built-in moving average. Therefore, the MACD histogram is an OsMA which shows the difference between the MACD line and the signal line.
- Any oscillator and any moving average (MA) of it can be used to create an OsMA.
- MAs (of an oscillator) move slower than the oscillator. Therefore, an increasing OsMA is bullish as prices are rising.
- A decreasing OsMA is bearish as prices are falling.
- When the OsMA goes from negative to positive that may indicate an uptrend is starting.
- When the OsMA goes from positive to negative that may indicate a downtrend is starting.
- Generally, when the OsMA is positive it helps confirm a price uptrend, and when negative helps confirm a downtrend in price.
The Formula for the Oscillator of a Moving Average (OsMA) is
How to Calculate the Oscillator of a Moving Average (OsMA)
- Select an oscillator and the time frame it will be based on.
- Select a moving average type and the number of periods in the MA.
- Calculate the oscillator value and then calculate the MA of the oscillator. Since moving averages are an average of multiple values, calculate as many oscillator values as needed before calculating the MA. For example, if you select a nine-period simple moving average (SMA) of the oscillator, then you will need at least nine oscillator values before the SMA can be calculated.
- Take the difference between the oscillator and the MA to get the OsMA reading. This can be a positive or negative number.
- Repeat steps and three and four as each time period ends.
What Does the Oscillator of a Moving Average (OsMA) Tell You?
The OsMA a useful indicator of trends and trend strength. Values above zero, especially a number of periods above zero, help confirm rising prices. Values below zero, especially a number of periods in a row below zero, help confirm falling prices.
Crossovers of the zero line can also be important. A zero line crossover occurs when the oscillator crosses above or below its MA. If the oscillator value drops below the MA value then the OsMA will record a negative value and shows the price is dropping. If the oscillator rises above the MA the OsMA will be positive and signals the price is rising.
Crossovers may provide the occasional good trade that catches a major price move, but crossovers can also produce loads of bad trades when the price is choppy and the OsMA flutters back and forth between positive and negative values. If using crossovers, it is better to be selective, such as only taking crossovers that align with a longer-term uptrend based on price action or another indicator. As the price is rising, consider buying when the OsMA falls below the zero line and then moves back above it. During a downtrend, consider short trades when the OsMA rises above the zero line and then drops below it. This won’t totally eliminate the poor signals but it will get rid of some and will aid in trading in the direction of the trend.
High values (relative to prior readings) on the OsMA indicate a very strong uptrend since the faster moving oscillator line is moving further and further away from the slower moving MA. Low values mean the price is falling rapidly since the faster moving oscillator is dropping quickly relative to the slower moving MA.
Such high and low readings are subjective though, as a reading that is too high or low could indicate that the market is near an extreme and is due for at least a short-term correction in the other direction. Looking at the past can reveal extreme on the OsMA. Mark prior high and low points on the OsMA where the price reversed. These levels may be relevant in the future again, although not always.
The Difference Between the Oscillator of a Moving Average (OsMA) and the Stochastic Oscillator
The stochastic oscillator indicator is a type of oscillator. Therefore, it could be used to calculate an OsMA. Like the MACD, the stochastic usually has a moving average applied to it. In this case, it is called %D, and is a three-period SMA of the stochastic (%K). To calculate the OsMA of the stochastic oscillator, take the difference between %K and %D.
The Limitations of Using an Oscillator of a Moving Average (OsMA)
The OsMA is a lagging indicator. That means that it will sometimes provide information that is outdated. For example, a positive crossover above zero may occur but the price has already moved up substantially and thus may no longer be a good candidate. Similarly, the OsMA may show a strong price uptrend with positive values, but the price could still sharply fall. The indicator may be slow to decline or cross below zero, even though the price has fallen substantially already.
False crossovers are also a common problem, especially when the price is choppily moving. The OsMA will move quickly above and below zero, providing little insight beyond confirming that price action is choppy and trendless.
OsMA индикатор (moving average of oscillator)
Tutorial About OsMA (oscillator of moving averages) and how to use osma in Technical analysis and hot to trade it on stock charts. About OsMA and using the moving averages in technical analysis. See chart examples of trading system and analysis of moving averages.
Technical Analysis and Proprietary Indicators
Technical Analysis, Studies, Indicators:
Oscillator of Moving Average (OsMA)
Oscillator of Moving Average (also called as Oscillator of Moving Average) is the same as MACD Histogram. It is calculated as the difference between MACD and its signal line which is a Moving Average applied to MACD.
Technical analysis theory states that when MACD starts to decline after being in advance it reveals that shorter MA (shorter-term trend) starts to decline toward longer MA (longer-term trend) which could be accepted as a signal of the possibility of change from up-trend into down-trend. Respectfully, when MACD starts to move up after being in decline, it could be considered as a sign of possible change from down-trend into up-trend. OsMA (or MACD Histogram) is design to spot these changes in the MACD trend and generate signals on it.
Simple trading system based on OsMA would generate signals on the crossovers of OsMA and zero line (center line)
- Buy when the OsMA runs above zero.
- Sell when OsMA runs below zero.
Chart 1: QQQ (Nasdaq 100) stock chart with OsMA (MACD Histogram) Signals
Divergence is another quite popular way in technical analysis to analyze Oscillator of Moving Average. Here a trader would be looking for negative and positive divergence which could be used as bearish and bullish signals respectfully:
- Negative divergence is noted when OsMA starts to decline after being at high positive levels, yet price continue to make new highs (price moves up);
- Positive divergence is noted when OsMA starts to advance after being at low negative, yet price continue to make new lows (price declines);
Chart 2: QQQ (Nasdaq 100) stock chart with OsMA (MACD Histogram) and divergence analysis
Formula and Calculations
OsMA calculations are exactly the same as MACD Histogram calculations:
MACD = Fast MA — Slow MA
OsMA = MACD Histogram = MACD — Moving Average of MACD
By V. K. for MarketVolume.com
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