The M-Oscillator analyses the price change rather than the price level. It draws the difference between prices at two time intervals.
It is a leading indicator of price direction. It can identify when the current trend is no longer maintaining its same level of strength or is losing
momentum. The importance of the momentum is when its value reaches to extreme levels either up or down.
M-Oscillator reading for default period of 14.
- M-Oscillator is plotted along the bottom of the price chart; it
fluctuates between positive and negative 14.
- Movement above 10 is considered overbought, and movement
below -10 is oversold.
- In sharp moves to the upside, the M-Oscillator fluctuates
between 5 and 14, while in down side it fluctuates between -5
- In an uptrend, the M-Oscillator fluctuates between zero and
14 and vice versa.
- The momentum line leads the price action (it leads the
advance or decline in prices).
- The crossing of the zero line is considered as a trading signal.
- The need for an upper and lower boundary.
- If recent price gains are the same as older price gains, the
momentum line will be fl at even though the market is still
- If recent price gains are less than those of before, even if
prices are still rising, the rate of change will have slowed
further, and the momentum line will actually drop.
- Using price differences in the erratic movements often caused
by sharp changes in the value.
The "Uber" M-Oscillator
The Uber version of M-Oscillator provides the following improvements:
- Period is not fixed to 14 anymore, can be determined freely
- Overbought and oversold conditions are automatically adjusted to the chosen period
- Ability to draw oscillator crosses on the signal line
- For both oscillator and signal line smoothing 16 moving averages are available
Available Moving Averages
16 different moving averages are available for oscillator and signal line:
- ALMA (Arnaud Legoux Moving Average)
- DEMA (Double Exponential Moving Average)
- EMA (Exponential Moving Average)
- FRAMA (Fractal Adaptive Moving Average)
- HMA (Hull Moving Average)
- JURIK (Jurik Moving Average)
- KAMA (Kaufman Adaptive Moving Average)
- Kijun (Kijun-sen / Tenkan-sen of Ichimoku)
- LSMA (Least Square Moving Average)
- RMA (Running Moving Average)
- SMA (Simple Moving Average)
- SuperSmoothed (Super Smoothed Moving Average)
- TEMA (Triple Exponential Moving Average)
- VWMA (Volume Weighted Moving Average)
- WMA (Weighted Moving Average)
- ZLEMA (Zero Lag Moving Average)
Traders can easily use the trend change signals to trigger alerts from:
- Cross Up
- Cross Down
Alert condition example: "Cross Up" - "GreaterThan" - "0"
We define the overbought area as anywhere above the 10
level. The oversold area is below -10. When the M-Oscillator goes
above 10 (overbought) and then re-crosses it to the downside,
a sell signal is triggered. When the M-Oscillator surpasses -10
to the downside and then re-crosses back above this level, a
buy signal is triggered. This tactic is only successful during
sideways markets; during an uptrend, the oscillator will remain
in its overbought territory for long period of times. During a
downtrend, it will remain in oversold for a long time.
- Buy when the M-Oscillator violates the (-10) level to the
downside and crosses back to the upside
- Sell when the M-Oscillator crosses above the (+10) level and
crosses back to the downside
Divergence is one of the most striking features of the
M-Oscillator. It is a very important aspect of technical analysis
that enhances trading tactics enormously; it shows hidden
weakness or strength in the market, which is not apparent in
the price action. A positive divergence occurs when the price is
declining and makes a lower low, while M-Oscillator witnesses
a higher low. A negative divergence occurs when the price is
rising and makes a higher High, while the M-Oscillator makes
a lower high, which indicates hidden weakness in the market.
Divergences are very important as they give us early hints of
- Buy when the M-Oscillator witnesses a positive divergence
with prices followed by a rise above (-10)
- Sell when the M-Oscillator witnesses a negative divergence
with prices followed by a decline below (+10)
Support and Resistance
During an uptrend, the M-Oscillator moves between (0) and
(+10). During a downtrend, most of the time the M-Oscillator
will move between (0) and (-10). Sometimes the (0) level acts
as support (in the case of uptrends) and resistance (during
downtrends). We can buy during an uptrend when the
M-Oscillator reaches its midrange (0) and begins to move to the
upside from there. During downtrends, an upward move to (0)
might be a selling opportunity.
It is also used as exit signal (when the M-Oscillator acts as a
resistance) as well as indication of a re-entry level (when the
M-Oscillator acts as a support)
When the M-Oscillator crosses above the (-10), giving
a buy signal, but it doesn’t retrace further than the zero
line, the M-Oscillator drops towards the lower boundary.
This is considered as weakness and an exit signal when the
M-Oscillator drops from the zero line toward the (-10). (To avoid
whipsaws, filters can be used.)
When the M-Oscillator breaks the (+10), giving a sell signal,
but it doesn’t retrace further than the zero line, the M-Oscillator
rebounds toward the upper boundary. This is considered as
strength and a re-entry point when the M-Oscillator rebounds
from zero line to upside. (To avoid whipsaws, filters can be used.)
Using M-Oscillator as a Trend Identifier on LongTerm Scale
During downtrends, the M-Oscillator does not reach
overbought zone. A move toward the overbought area is a sign of
strength when it occurs for the first time in a while. On the other
hand, during uptrend, the M-Oscillator does not reach oversold
areas easily. Going into oversold and staying there after a long
time is a signal that the uptrend is reversing. (As Constance
Brown explained in her book Technical Analysis for the Trading
Professional, chapter 1, “oscillators do not travel between 0 and
Crossover on Extreme Levels
Sell signals are triggered when the M-Oscillator crosses
its signal line above (13), which indicates an extreme market
condition, and buy signals are triggered when the M-Oscillator
crosses its signal line below (- 13).
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