What Is the Oscillator of a Moving Average (OsMA)?

What Is the Oscillator of a Moving Average (OsMA)?

Let me break down what OsMA really is for you. OsMA stands for oscillator of a moving average, and it's a technical indicator that highlights the difference between an oscillator and its moving average over a specific period.

You'll often see the MACD as the go-to oscillator here, though you can use any. The MACD includes its own moving average called the signal line, which is basically an average of the MACD line itself. The OsMA shows the gap between these two as a histogram, and it helps confirm trends or spot potential trade signals.

Key Takeaways on OsMA

At its core, OsMA combines an oscillator with a moving average of that oscillator to measure the distance between them. You can build it with any oscillator and any type of moving average.

Remember, moving averages of an oscillator lag behind the oscillator itself. So, when OsMA is increasing, that's a bullish sign because prices are climbing, and the opposite holds for decreasing OsMA.

If OsMA shifts from negative to positive, it might signal the beginning of an uptrend. Conversely, moving from positive to negative could indicate a downtrend starting. In general, positive OsMA confirms rising prices, and negative confirms falling ones.

Formula for the Oscillator of a Moving Average (OsMA)

The formula is straightforward: OsMA equals the oscillator value minus the moving average value. That's it—direct and simple.

How to Calculate the Oscillator of a Moving Average

Start by picking your oscillator and the time frame it's based on. Then choose a moving average type and how many periods it covers.

Calculate the oscillator value first, then compute the moving average of those oscillator values. Keep in mind that moving averages need multiple values, so if you're using a nine-period SMA, you'll need at least nine oscillator readings before it kicks in.

Subtract the moving average from the oscillator to get your OsMA reading—it could be positive or negative. Repeat this as each new period closes.

What Does the Oscillator of a Moving Average (OsMA) Tell You?

OsMA gives you insights into trends and their strength. When it's above zero for several periods, that confirms prices are rising. Below zero for a stretch? That's confirming a drop.

Pay attention to zero-line crossovers too—that's when the oscillator crosses its moving average. If the oscillator dips below the MA, OsMA goes negative, signaling falling prices. If it rises above, OsMA turns positive, indicating a rise.

These crossovers can sometimes catch big moves, but in choppy markets, they lead to a lot of false signals as OsMA flips back and forth. To use them effectively, be selective: align them with the overall trend from price action or another indicator. For example, in an uptrend, buy when OsMA dips below zero and then crosses back up. In a downtrend, short when it rises above and drops back down. This filters out some bad trades and keeps you trading with the trend.

High OsMA values compared to past ones show a strong uptrend, as the oscillator pulls away from the slower MA. Low values mean prices are dropping fast. But watch out—these extremes can signal an overextended market ready for a correction. Check historical highs and lows on OsMA where prices reversed; they might matter again, though not always.

A Quick Tip on MACD and OsMA

Here's something useful: the MACD is a popular oscillator with a built-in moving average, so its histogram is essentially an OsMA showing the difference between the MACD line and the signal line.

The Difference Between OsMA and the Stochastic Oscillator

The stochastic oscillator is another type of oscillator, so you could use it to create an OsMA. Like MACD, stochastic often includes a moving average called %D, which is a three-period SMA of the stochastic (%K). To get the OsMA for stochastic, just subtract %D from %K.

Limitations of Using an Oscillator of a Moving Average (OsMA)

OsMA is a lagging indicator, so it sometimes gives you outdated info. For instance, a positive crossover might happen after prices have already surged, making it a poor entry point. Or it could show a strong uptrend while prices suddenly crash, with OsMA slow to react.

False crossovers are common in choppy, trendless markets, where OsMA bounces around zero without much insight beyond confirming the messiness.