Confused by detecting the direction of price movements and the strength of the latest trends in forex trading? Easy, try using the OSMA indicator.
Characteristics of OSMA Indicators
Platform: MT4
Pair: Any currency pair.
Trading session: Anytime.
Timeframe: M30 to W1
What is the OSMA Indicator?
As the name suggests, the OSMA Indicator is a technical indicator of the type of oscillator calculated from the difference between the Moving Average in a long period with a short period MA. Technically, OSMA is calculated based on the difference between the MACD line and the MACD signal line. In other words, OSMA will look like a bar histogram on MACD.
OsMA = MACD - signal
The oscillator has a basic function to help traders identify oversold or overbought conditions and inform when the trend starts to change direction. The key is the dynamics of the oscillator line fluctuating from line 0 or center line.
Market changes towards an uptrend are marked by the OSMA oscillator that moves from below the center-line. Conversely, if the oscillator moves from above past the center-line then there is an indication that the market will go into a downtrend.
How to Use the OSMA Indicator in MT4
The OSMA indicator is included in the built-in indicator on the MT4 trading terminal. Just follow these simple steps to display the OSMA indicator on MT4:
1. Click the "Insert" menu in MT4.
2. Click "Indicators", then select "Oscillators" in the dropdown menu
3. Select "Moving Average of Oscillator".
what is the OSMA indicator, menu
4. To set the display or additional options for the OSMA indicator, press the CTRL + I button on the keyboard to open the indicator options window, then edit the OSMA indicator as needed
OSMA Indicator Trading Signal
The OSMA indicator can be used based on its basic functions or developed more complex as a signal of divergence. If you are a beginner trader, the basic function of OSMA is enough to get an open position signal during the trend.
what is the OSMA indicator, trading signal
On the EUR / USD chart (H4) above, the downtrend condition is seen to change direction when the oscillator starts moving past the center-line from below. Changes in conditions from the downtrend are confirmed when the candlestick appears sticking out (breakout) from the upper limit of the channel trendline.
In addition to detecting trend changes, the OSMA Indicator can be utilized to identify oversold and overbought markets. The closer the OSMA oscillator is to the upper limit, the more likely the market is in overbought condition, otherwise the oversold condition is reached if the OSMA oscillator is near the lowest limit.
Also note the change in the low height of the oscillator bar sequence. Overbought indications begin to appear when the highest point is followed by a lower oscillator bar. Conversely, if the lowest point is followed by a higher oscillator bar, keep an oversold condition. Practically, you can use this feature to find out when you have to close a trading position before it reaches oversold or overbought conditions.
If extracted, here are the trading signals from the OSMA Indicator:
Open long (buy) position when OSMA oscillator moves past center-line (number 0) from bottom to top. Maintain this long position until the oscillator almost reaches the overbought level.
Open a short position (sell) when the OSMA indicator moves past the center-line from top to bottom. Hold short positions until the oscillator almost reaches oversold.
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