Technical Analysis, Studies, Indicators:

Oscillator of Moving Average (OsMA)

Description

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

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