To become a good trader, you must constantly seek out new information that can give you an edge in the financial market. Every day, more indicators and trading systems based on them appear. A trader must be able to analyze data across the board and continually test various trading instruments. Some of these can significantly improve trading efficiency. In this article, we will discuss the OsMA (Moving Average of Oscillator) indicator — a relatively new oscillator that gives traders a clearer picture of current market conditions.
The Origins of OsMA
The name speaks for itself. The tool is a hybrid of an oscillator and a trend indicator. This combination makes it possible to trade in conditions where there is no pronounced trend and the chart shows sideways price movement.
One of the main goals behind the creation of OsMA was to eliminate the primary drawback of MACD — signal lag. The idea was that this approach would improve the accuracy of technical analysis. The result was a notable success. Today, the OsMA indicator is a standard feature in any modern trading terminal. In MT4, for example, it can be found under "Insert → Indicators → Oscillators," meaning traders no longer need to search for it online. It is always close at hand.
Description of the OsMA Indicator
The indicator values reflect the difference between the signal line and the MACD. This signal line, however, is not a standard moving average — it is something distinct. The result of these calculations is displayed as a histogram of bars.
When the MACD bars are positioned above the signal line, the OsMA bars will similarly appear above the zero level. Conversely, when the MACD line is above the bars, the OsMA histogram will fall below the zero level.
The size of the bars that form the histogram depends on the distance between the MACD bars and the signal line.
This is also useful for market analysis, as the height of the OsMA bars indicates the strength of the prevailing trend.
OsMA Parameters
When adding this indicator to a chart, the user will see a list of configurable settings in the "Options" tab. There are four parameters in total, all of which are part of the indicator's core algorithm. Every serious trader should understand what each one does.
- Sets the number of candles used to calculate the fast exponential moving average. This is used to identify the short-term trend.
- Sets the period for the slower exponential moving average, which reflects the broader trend.
- MACD SMA — the simple moving average parameter that functions as the signal line.
- "Apply to" — determines which price values are used when constructing the moving averages.
Trading with OsMA
Below, we will look at one of the simplest strategies based on this indicator. First, it is important to understand that OsMA is a modified version of MACD. Accordingly, the description of trading signals will include a comparison between the two.
Basic Signals
- Consider buying when the OsMA histogram bars cross the zero line from below. Pay attention to the size of the bars as well — if they continue to grow, this is a clear sign of a strengthening trend. It is advisable to close the position when the bars begin to shrink, as this suggests the trend is losing momentum.
- Consider selling when the OsMA histogram bars cross the zero line from above. As with buy signals, a position can be held until the bars begin to decrease. Once that pattern appears in the indicator window, it is time to look for an exit point.
Additional Notes on Working with OsMA
Newer traders should be aware that, like most indicators, OsMA will periodically generate false signals — for instance, suggesting the trend has ended when the price movement is actually just a correction. For this reason, it is recommended to use OsMA alongside other technical analysis tools, such as support and resistance levels. This allows for more informed decisions about when to enter and exit the market.
Profitable trading requires comprehensive analysis, and OsMA is just one part of it. A trader should always assess the situation objectively and make reasoned decisions. Following every signal blindly can result in losses.
OsMA helps identify the emergence of a trend early, allowing a trader to enter the market at the beginning of its formation — which is exactly the kind of timing needed to maximize profit on a trade.
Divergence
For those familiar with MACD, the concept of divergence needs little introduction. Divergence refers to a discrepancy between an asset's price movement and the readings of the oscillator. Using OsMA to detect divergence is highly effective — in practice, the majority of such signals play out as expected. The examples below illustrate this.
- Bullish divergence. A trader notices a discrepancy between the candlestick chart and the indicator's lows. While price action suggests a downtrend, the histogram has formed two rising lows — a likely sign of an impending reversal. In most cases, a trade opened at this point will be profitable, as the trader is entering near the start of a new trend.
- Bearish divergence. The signal forms in a similar way. During a bullish move, the candlestick chart shows a series of rising peaks. If the OsMA histogram is showing declining highs at the same time, it may be an appropriate moment to open a short position.
Advantages of OsMA
OsMA gives every trader access to an improved version of MACD that addresses its key weaknesses. The majority of signals it generates are timely and accurate. The indicator helps identify the optimal entry point by distinguishing between a deep correction and the start of a new trend. The reduction in signal lag alone offers a meaningful advantage. Overall, OsMA provides traders with a significant edge when executing trades on Forex.
That said, the financial market is a complex environment, and it is important to account for both the strengths and limitations of any tool. Other indicators should be used to confirm signals. It is also worth noting that choosing between OsMA and MACD is not necessary — most experienced traders find the two work well together and complement each other effectively.
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