Introduction to the BO Indicator
Most trend following oscillators indicate only momentum or trend and not its strengthening and weakening. Most also do not have an objective qualification of a breakout.
The BO Indicator is a momentum technical indicator which displays the direction of the trend as well as its trend strength and possible breakouts.
What is the BO Indicator?
The BO Indicator is a momentum technical indicator which displays the direction of the trend as well as its trend strength as an oscillator.
This indicator plots histogram bars which oscillate freely around zero. The value of the bars indicates whether the general trend bias is bullish or bearish while the color of the bar indicates whether the trend or momentum is strengthening or weakening. It also has markers at levels -1 and 1 which confirms the trend breakout.
Positive green bars indicate a strengthening bullish momentum, while positive red bars indicate a weakening bullish momentum. Negative red bars indicate a strengthening bearish trend, while negative green bars indicate a weakening bearish trend.
Green bars crossing above 1 indicate a bullish breakout, while red bars dropping below -1 indicate a bearish breakout.
How the BO Indicator Works?
The BO Indicator calculates for the difference between a 5-bar Simple Moving Average (SMA) and a 34-bar Simple Moving Average (SMA). These SMA lines are not based on the close of the bar but rather on the midpoint of the bar, which is the average of its high and low. It then plots the histogram bars based on the value of the difference of the SMA lines. It also plots green bars whenever the value of the current bar is higher than that of the previous bar and red bars when it is lower than the previous bar.
How to use the BO Indicator for MT4
The BO Indicator has two variables which modifies its sensitivity.
The “Period1” and “Period2” variables adjusts the number of bars used on the underlying SMA lines, which then changes its sensitivity.
This indicator can be used to identify trend direction based on whether the bars are generally positive or negative.
It can also be used to trade trend reversals based on the shifting of the bars from positive to negative or vice versa.
Traders can also use the changing of the color of the bars to trade trend continuation setups based on momentum.
However, as a momentum breakout indicator, this indicator is also well suited for trading breakout signals based on bars breaking out of the -1 and 1 range.
Buy Trade Setup
When to Enter?
The bars should be generally positive. Open a buy order as soon as a green bar cross above 1. Set the stop loss below the entry candle.
When to Exit?
Close the trade as price action shows signs of a bearish reversal.
Sell Trade Setup
When to Enter?
The bars should be generally negative. Open a sell order as soon as a red bar cross below -1. Set the stop loss above the entry candle.
When to Exit?
Close the trade as price action shows signs of a bullish reversal.
Conclusion
There are many approaches to using this indicator and many traders have found success using these different approaches. However, most typically use a confluence between these signals and another technical indication as well as price action.
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