Price movements are a projection of what the market believes about price, whether it is too expensive or too cheap, whether market participants believe price might still be going higher or price is at its peak, or the inverse of this. Market participants and their sentiments are often erratic. One moment they are bullish, then it dives back down as fast as it rose. Market sentiment is like a pendulum, extreme bullishness one moment, then after its peak, is a swing to extreme bearishness. This erratic market behavior is often the reason why new traders lose money in the markets. But how do you make sense of an erratic market?
Notice that after a price extreme, the market tends to swing back to the other direction. This is the moment that we as traders should be waiting for, a trend reversal after a peak.
The Moving Average Oscillator Signal Forex Trading Strategy is a strategy that is based on trend reversals coming from a market swing. This strategy trades on confirmed trend reversals using a couple of complimentary indicators which work well together in providing reversal entry signals.
The Oscillator of Moving Averages
Table of Contents
- 1 The Oscillator of Moving Averages
- 2 Moving Average Trading Signals Indicator
- 3 Trading Strategy
- 4 Conclusion
The Moving Average Oscillator, also known as the Oscillator of Moving Averages (OsMA), is an oscillating indicator which excels in determining market swings and reversals. It identifies market peaks and troughs, as well as bullish and bearish market trends.
The OsMA does this by determining the difference between an oscillating indicator and its smoothened version. The OsMA is usually based on the Moving Average Convergence and Divergence (MACD), a very popular oscillating indicator. The OsMA is actually the difference between the MACD and its smoothened version. In a way, the OsMA is a derivative of an oscillating indicator.
Traders interpret the OsMA much like they would use the MACD. Rising OsMA histograms indicate a bullish trend, while falling histogram figures indicate a bearish trend, regardless of whether it is positive or negative. However, many conservative traders also use the crossing over of the midline as their entry signal. This crossing over acts much like a confirmation of a trend reversal, which originated from a swing coming from an extreme price point, whether overbought or oversold.
Moving Average Trading Signals Indicator
The Moving Average Trading Signals indicator is a custom indicator which provides entry signals based on the shifting of trends using moving averages. It observes for trend reversals and provides entry signals by printing arrows pointing towards the direction of the new trend.
It is unclear what the basis of these entry signals are, since the author of this indicator has not discussed it. However, observing the signals that this indicator provides would show that the signals provided are accurate and certainly useable within a strategy.
This strategy is a trend reversal strategy based on the Oscillator of Moving Averages. Trade signals are based on the confirmed trend reversals, which is the crossing over of the histogram bars over the midline of the indicator. Trade signals are then confirmed by the Moving Average Trading Signals Indicator. The two indicators are complimentary. Although not all signals provided by each indicator occur at the same time, during strong trend reversals, the two indicators would usually provide an entry signal at almost the same time. These confluence of reversal signals could be considered as high probability reversal signals. As such, only reversal signals that are closely aligned would be considered.
- Fast MA Mode: 2
- Slow MA Period: 16
- Moving Average of Oscillator
- Fast EMA: 24
- EMA: 30
- MACD SMA: 27
Preferred Timeframe: 4-hour and daily charts
Currency Pairs: major and minor pairs
Trading Session: Tokyo, London and New York
Buy Trade Setup
- The histogram bar of the OsMA indicator should cross above zero indicating a confirmed bullish trend reversal
- The MA Trading Signals indicator should print an arrow pointing up indicating a bullish trend reversal
- These entry signals should be somewhat aligned
- Enter a buy order on the confluence of the above conditions
- Set the stop loss at the support level below the entry candle
- Close the trade as soon as the OsMA prints a negative histogram bar
- Close the trade as soon as the Moving Average Trading Signals indicator prints an arrow pointing down
Sell Trade Setup
- The histogram bar of the OsMA indicator should cross below zero indicating a confirmed bearish trend reversal
- The MA Trading Signals indicator should print an arrow pointing down indicating a bearish trend reversal
- These entry signals should be somewhat aligned
- Enter a sell order on the confluence of the above conditions
- Set the stop loss at the resistance level above the entry candle
- Close the trade as soon as the OsMA prints a positive histogram bar
- Close the trade as soon as the Moving Average Trading Signals indicator prints an arrow pointing up
Although this strategy waits for a confirmed trend reversal, which is based on the crossing over of the midline of the Oscillator of Moving Averages, the entry signals provided are not too lagging. In fact, the trade signals provided are often near the start of the trend. On top of this, the signals provided do tend to trend long enough.
Having the two indicators, OsMA and the Moving Average Trading Signals, provide trend reversal signals at quite the same time increases the accuracy of the trade setups. The key is to find signals that are closely aligned.
Another aspect to watch out for is the placement of stop losses. Stop losses should not be too tight since we are looking for trend reversals. However, it should also not be too far from our entry points as this might cause the reward-risk ratio to suffer. Trade management techniques, such as moving stop losses to breakeven and trailing stop losses at a right distance, is also key. Having these right would ensure a consistently profitable trading account using this strategy.
Forex Trading Strategies Installation Instructions
Moving Average Oscillator Signal Forex Trading Strategy is a combination of Metatrader 4 (MT4) indicator(s) and template.
The essence of this forex strategy is to transform the accumulated history data and trading signals.
Moving Average Oscillator Signal Forex Trading Strategy provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.
Based on this information, traders can assume further price movement and adjust this strategy accordingly.
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How to install Moving Average Oscillator Signal Forex Trading Strategy?
- Download Moving Average Oscillator Signal Forex Trading Strategy.zip
- *Copy mq4 and ex4 files to your Metatrader Directory / experts / indicators /
- Copy tpl file (Template) to your Metatrader Directory / templates /
- Start or restart your Metatrader Client
- Select Chart and Timeframe where you want to test your forex strategy
- Right click on your trading chart and hover on “Template”
- Move right to select Moving Average Oscillator Signal Forex Trading Strategy
- You will see Moving Average Oscillator Signal Forex Trading Strategy is available on your Chart
*Note: Not all forex strategies come with mq4/ex4 files. Some templates are already integrated with the MT4 Indicators from the MetaTrader Platform.
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