OsMA Divergence Indicator For MT4



Table Of Contents:

  1. OsMA Divergence Indicator For MT4
  2. Advantages and Disadvantages
  3. Summary

OsMA Divergence Indicator For MT4 is essentially a variation of any popular oscillator such as the RSI, stochastics, CCI momentum and the MACD, and which utilises an exponential moving average (EMA). The most common oscillator on the OsMA would be the MACD, just without the plotting of the MACD trigger line on the indicator. This is also the same version found on the MT4. The OsMA is an abbreviation for oscillator of moving average.

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So, in simple theory, its applications are derived from an oscillator (MACD in the case of the MT4 platform) and an exponential moving average. The OsMA is just the average difference between the normal MACD and its signal line. It’s easy to understand how this indicator is formed once you understand how the MACD is formed. The standard settings on the MT4 platform are 26:12:9, which represent the difference between the periods of the 26 and 12 EMA, and then 9 representing the signal line of the default MACD itself.

 

Advantages and Disadvantages

One of the main advantages of the OsMA Divergence Indicator For MT4 is its ability to display the varying degrees of impulse moves according to the length of the histograms, and these readings could be used as one method to assess the strength or weakness of a specific trend. The general premise of the OsMA is that any readings above the zero line would be assumptions of an emerging uptrend, and inversely, readings below the zero line would be assumptions of an emerging downtrend.

Similarly, any situations where the histograms move from positive to negative values could also be viewed as potential trend continuations. This feature could be useful for scalpers that typically would aim for a smaller number of pips if one is viewing smaller time-frames. For more long-term traders, this would be more smoothed out on bigger time-frames and could prove more reliable and consistent. In one respect, the slight disadvantage of the OsMA would be the fact that it doesn’t have the moving average on the indicator as the MACD as seen on the MT4 platform.

So, in essence, it may just be considered a stripped-down version of the MACD as one would not be able to use the classic convergence or cross strategy between the MACD signal line and the histograms. Though on the flipside of the coin, this simplicity may be useful for other traders that are only interested in discerning the strength or weakness of a particular instrument without the plotting of the moving average.

As with most oscillators, probably the most effective utilisation for the OsMA Divergence Indicator For MT4 would be the divergence. The advantage of a divergence with this indicator is how it can be simply plotted out by the trader in a clearer and evener line than a divergence from the RSI, for example. The biggest disadvantage would be the overall lagging nature of this indicator. It’s a well-known fact that the lagging in indicators makes them very prone to false signals. They also have the tendency to make you enter too late or too early on a new trend, and can perform particularly badly in times when the market is choppy or range-bound.

Therefore, it may require the trader, almost certainly, to do multi time-frame analysis for better results so one can understand what is currently happening in the market and what that looks like in the grand scheme of things. This inherent slow pace also applies to the divergence in this case. Hence, in other words, it’s far slower than most oscillators.

Reliable divergences from this indicator are few and far between than with the RSI as a result of this slow nature, though could surprising be useful for a time-frame such as the daily chart particularly after a very extended move to either side. This slowness could be beneficial for traders that would be anticipating to enter after a divergence more conservatively than aggressively. With such a divergence, it is a swing trader’s dream since such opportunities allow for a very high potential reward relative to low risk if one has the fortitude to hold a trade for a very long time.

Something which is also interesting about the OsMA Divergence Indicator For MT4 is always observing the difference between the strength of a price rally or drop and the rate at which the indicator is oscillating. Besides the divergence, going back to the slow nature of the indicator, if one is observing a fairly massive push in any kind of trend that stems from a pullback, if the oscillator does not exhibit a lot of histograms as it relatively would, these events could be one subtle, tell-tale clue of what is possible in the future.

So, whilst the slowness of the indicator is a massive drawback, there are a few other ways where this could be manipulated or profited from. Like anything else, this should always be coupled with other confirmations than just what the indicator is suggesting. You would have to do a lot more work in addition when using this indicator to compensate for its disadvantages.

Summary

Overall, the OsMA Divergence Indicator For MT4 is a great momentum oscillator due to its simplicity, visual appeal on the charts and identification of potential trends, and reversals mainly with the divergence. These are neatly fitted into a classy price representation on our charts that doesn’t look too messy nor too simplistic either. This suits all types of trading strategies from classic trend followers to reversal traders. It is almost useless in moments where the markets are trending sideways.

Because such kind of markets are very difficult to anticipate, this indicator should only be considered for trending markets. It’s also much more difficult in smaller time-frames, say below the 4H, because of the heavy lagging accompanied by the signals. Of course, as with any other indicator, the OsMA is only a tool that harnesses and is less effective when used as a standalone tool for technical analysis.

Other tools that would enhance it would certainly be powerful price action patterns, perhaps another indicator and any other type of analysis that will compliment the indicator. It would also be more reliable for more long-term traders that use the daily, weekly and monthly time-frames instead of time-frames below this threshold. Happy OsMA adventures!

 

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