Trading the OsMA

[Sobe]

Hi,

I'd like to introduce my method of trading. Trading the OsMA. I hope to provide some insight to an indicator and trading methodology I have used and continued to develop over many years of trading.

I hope to get lots of feedback, and anyone interested in joining me is more than welcome. I'll continue to post lots of charts and examples, as well as the indicator I use.

It's hard to find much information about OsMA, so I'll provide what I know of it here:

What is it?

Oscillator of Moving Average (OsMA) is the difference between an oscillator and oscillator smoothing. When using OsMA, the Moving Average Convergence/Divergence (MACD) base-line is used as the oscillator, and the signal line is used as the smoothing.

The MACD is calculated by subtracting the value of a 26-period exponential moving average from a 12-period exponential moving average. A 9-period simple moving average of the MACD (the signal line) is then plotted on top of the MACD.

Of course these are the standard OsMA settings. (12, 26, 9)

How does it work?

When OsMA is increasing, whether above or below the Zero line it indicates buying. On the other hand, when OsMA is decreasing, it indicates selling.

Crossing the Zero line indicates a possible trend change and the Oscillator is no longer converging, but has begun to diverge.

Price discrepancies can give excellent trading opportunities.

My Indicator

The base code for the OsMA indicator is the one on the Metatrader 4 platform. While I am a professional trader, I am an amateur programmer. My indicator works well, but not perfect. I'm sure if a professional programmer looks at the code, they'd probably laugh, but hey, it works for me. I modified it to show different colors when OsMa is increasing or decreasing, and is above or below the Zero line. In addition, I added a multiple time frame parameter. Leaving it at (0) will show the current time frame.

Attached is my indicator.

 

[Sobe]

Here's how I use it

Here's how I set it up:

M30 Chart.

OsMA MTF=M30 (0)
OsMA MTF=H1 (60)
OsMA MTF=H4 (240)

55 EMA=Blue Line
21 EMA=Red Line

Here's how it looks:

 

[Sobe]

Here is a trade example

Here is a trade example using OsMA:



Here is the same example showing the entry candle:

 

[Sobe]

When NOT to enter

Here is an example of when NOT to enter:



Entering into a strong trend can be tough. That's why I prefer to enter on pullbacks. If you missed the first entry, then oh well...Another entry will come around...and it did the next day as indicated by the last horizontal line on the above image.

Additionally, entering off a pullback provides a solid place to put a stop-loss. Placing a stop-loss just above the high gives you a place to GET OUT!!

Generally speaking, there is 1-2 trades per pair everyday. However, I prefer trades at the beginning of a session (Asian, European, US). I trade eight pairs including:

EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD, EUR/JPY, GBP/JPY.

Essentially, I am looking for the best trade opportunities in the strongest trends. I am not trying to trade every pair, every day (unless it's one of those days).

After a while using this method you can begin to anticipate trades and develop a trade plan. If you know the H4 is trending down, the H1 is beginning to peak, and M30 is already decreasing, while price is running into resistance (resistance line, pivot, MA, etc..) you can begin to develop a trade plan.

 

[Sobe]

A good entry

Here is an example of a good entry on the GBP/USD from today during the European session:




Conversely, here is the same entry on the EUR/USD, but you can see the setup was very different and hard to enter:

 

[Sobe]

The importance of using MTFs

Make sure you are using Multiple Time Frames, this is how I have each pair setup:



It is very important to know what type of trader you are, I can not trade M1, M5, M15 charts (trust me, I've tried). IMO, it's just noise. While the M30 charts are not the most traded TF out there, it does give me an earlier entry than the H1.

My screen is always setup with two charts for the same pair. One is the M30 with 3 OsMA's, and the other I am toggling back and forth between the H1 and H4, looking at my MA's, candle formation, chart patterns, etc....

 

[Sobe]

Possible Countertrend Trade Setup

Here is a possible live trade setup:



Counter-trend trades are certainly not my favorite flavor, especially when it means buying the Euro in these recent market conditions. If you are interested in this trade I would not get too greedy and pay attention to the 1.2600 level on the way up. Everybody and anybody is looking for reasons to short the Euro, it could turn on you QUICK!!

 

[Sobe]

Targets and Stops

Here is a trade on the GBP/JPY from yesterday. It illustrates where an initial stop-loss would be placed and then how I manage my position and take profits:

 

[Sobe]

Possible Live Trade Setup

Here's a possible live trade setup on the GBP/JPY:



The line in sand has been drawn on the GBP/JPY. We got a triple-touch at 134.93. H4 is trending downward, H1 is peaking, and M30 is coming down. The line in the sand has been drawn....no confirmation yet, but be ready!!

 

[timsk]

Hi Sobe,
Welcome to T2W!
I'm not a Forex trader and I'm not familiar with the OsMA, but your opening clutch of posts are well explained and the thread looks set to be an excellent contribution to the forum. Good work - keep it up!

Tim.

 

[Sobe]

Thanks Timsk

Thanks Timsk!! :cheesy:

 

[Sobe]

Recap of today's live trade setup on EUR/USD

Earlier today I made reference to two trade setups, one on the EUR/USD, which was a counter-trend trade, which as I mentioned I do not like. Here is the original chart:



As you can see price was at 1.2538. I thought price would retrace to 1.2600 before it got shorted heavy again. Here is what happened:



Traders just couldn't wait to get in and sell the Euro. The dollar is certainly not strong, momentum has taken over.

 

[Sobe]

Recap of today's live trade setup on GBP/JPY

Here is today's earlier trade call on the GBP/JPY:



Here is the results:



My entries were from 134.91 through 134.85. I exited half of my positions at 134.00 and the rest between 134.45/50 on the close of the first OsMA that closed back green.

 

[Sobe]

Looking ahead to next week

Here's a look at the weekly EUR/USD chart:



We are matching the low of the 2008 economic collapse on the EUR/USD. Certainly, big banks and hedge funds (big boys) are watching these levels, and you should too!!

This area could get hairy, or it could be like a hot knife through butter, if so who knows when it will stop, maybe 116.00?

Unfortunately....I don't control the market Who knows what will happen!! But, I regularly make it a point to look at these long-term charts often times you can gain some valuable insight.

 

[Sobe]

Is this amazing or what?

A fellow trader just sent me an article, and I thought it was appropriate being that my last post was speaking of the financial crisis of late 2008.

Here is the article:

Business Week Article

The one quote that I found interesting, "Samuel Robinson, a Goldman Sachs spokesman, said in an e-mail. “We believe it shows the strength of our customer franchise and risk management.”"

My response: It's easy to make money when there's no risk. I would love to leverage my account 100:1, and if I blew it out the government would come and save me!!

 

[pseudo straddle]

?

I can only see the original attachment and the link to the BW article - but no other charts - anyone else ?

 

[Sobe]

?

I can only see the original attachment and the link to the BW article - but no other charts - anyone else ?

Hi Pseudo Straddle,

Thanks for bringing this to my attention. I have been linking my images from my album that was set to private. Only moderators and my contacts are able to see them. I have changed the album to public. Let me know if that makes a difference. If not I am going to have to go back and put all the images as attachments instead. Thanks Again.

Sobe

 

[Sobe]

AP Article

Here's an article from today:

Trichet: economy in deepest crisis since WWII:

AP Article

Looks like the Euro could continue to get pummeled. I sense a little panic in his language. Anybody else...?

 

[pseudo straddle]

Hi Pseudo Straddle,

Thanks for bringing this to my attention. I have been linking my images from my album that was set to private. Only moderators and my contacts are able to see them. I have changed the album to public. Let me know if that makes a difference. If not I am going to have to go back and put all the images as attachments instead. Thanks Again.

Sobe

Cheers I can see some charts now!

 

[Sobe]

Refreshing your charts

As I mentioned in my first post, I am an amateur programmer, and using MTF indicators can be a bit tricky. So I want to clarify a bit how to use my indicator, at least when looking at the H1 and H4 OsMA on an M30 chart.

First here is an unrefreshed AUD/USD M30 chart:



As you can see the H4 bars look like a mess, right. Well, all you have to do refresh your chart by changing the TF back and forth and it will look like this:



So, before anybody says "your indicator repaints" I have provided this explanation of how it works. While MQL is good, it is not perfect. Sometimes we have to use our brains a little, and be just a bit smarter than the indicator. :smart:

If you are ever confused of the color of a current OsMA bar you can simply go to that TF. The top OsMA window is set to (0) which is the current TF, and voila, you can see the actual color. Also, the true color will always be the first bar in that TF.

The important thing when looking at the 4-hour OsMA is the trend. Don't get caught up on the color of all the individual bars. As long as there is an obvious strong trend and the last bar is red/green, whichever way you are trading, you are good to go.