Moving Average of Oscillator

Metatrader 4 lists this indicator as the Moving Average of Oscillator in their list of technical indicators. In forex trading circles, the Moving Average of Oscillator is also referred to as the OsMa, the initials of the longer form, Oscillator of Moving Average.

Traders should know that the OsMA is derived from the Moving Average Convergence Divergence, or MACD. Put very simply, the OsMa is the moving average of the difference between the 12-period moving average, and the 26 period moving averages in the popular MACD indicator.

Interpreting the Moving Average of Oscillator Indicator

Traders who wish to use the OsMA to find potential forex trades need remember only two conditions:

1. When the OsMA bottoms and moves higher, a buying signal is found.
2. When the OsMA tops and begins to decline, a selling signal is found.

Traders who use a Moving Average of Oscillator can read the middle zero point as being the focal point for buys and sells. Above the zero line, a forex pair is becoming overbought. Below the zero line, a forex pair is trending toward oversold.

Moving Average of Oscillator Divergence

Traders will find that the best signals come from strong divergence between Moving Average of Oscillator trends and recent price trends. Below we show you what happens when the OsMA diverge from the price of a currency pair:

Note that the price of the currency pair fell as the OsMA moved higher. Eventually, the price caught up with the indicator in a quick reversal.

Divergence is a very valuable trading indicator, which you will find on every oscillator. Other technical indicators like the RSI, MACD, and Stochastic Oscillator can be used to find divergence, which translates later into strong reversals. Consider complementing the OsMA with momentum indicators, which include popular Metatrader technical indicators like the Force Index, and Bollinger Bands.