Osma
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OsMA is used in technical analysis. It is the abbreviation for Moving Average of Oscillator. It is a representation of variance between the oscillator and moving average over a time. This relationship is one of the basic tools in technical analysis. It indicates the trend in data and can alert when a security is oversold or overbought. This is a very simple indicator, based on the MACD indicator by default, but there are other versions of it that can be found, of course, based on other technical analysis indicators. We will take care of its most popular version, that is Osma for MACD.
MACD itself is one of the most popular, if not the most popular, technical analysis index in the world. It is used by investors who deal with long-term trading on shares as well as currency scalpers. For Moving Average Covergence Divergence this is the best recommendation. It is hardly surprising that someone decided to experiment a bit with this indicator and try to improve it, change or simplify its reading. This is how Osma for MACD was created.
Construction and operation of OSMA
To describe the operation of Moving Average of Oscillator for MACD, we must first deal with the MACD itself. Moving Average Covergence Divergence is an indicator that is based on three moving averages and consists of two lines: MACD and signal lines. The MACD line is calculated on the basis of two variables - it is the difference between the value of the exponential average of 26 periods and the exponential average of 12 periods. The signal line, in turn, is a simple rolling average over 9 periods. These are of course the default settings that are used most often. They can be adapted to their own strategy, however changing the number of periods in the case of MACD is rather rare. Similarly, in the case of MACD in OsMA.
In some versions of MACD available in the network except two lines - MACD and signal line, we will see a histogram. This histogram is OsMA. This is a graphical representation of the difference in value between the MACD line and the signal line.
Using the Moving Average of Oscillator
OsMA for MACD, the most popular version of the indicator, is useful for those investors who are trying to simplify everything that is on their chart as much as possible. We are interested in this case, the histogram illustrated by the difference between the MACD line and the signal line, i.e. the difference between the oscillator and its moving average. Using OsMA instead of MACD is possible only when the investor uses only the signals generated by intersection of the MACD line and the signal line. In the OsMA histogram, we will not see the divergence and the intersection of the zero line by the MACD. The signals are therefore hardly trimmed. The only thing that interests the investor is the moment when OsMA breaks the zero line - this is tantamount to the intersection of the MACD line and the signal. When OsMA was positive and fell below the zero line, it is a sales signal. A negative OsMA that has entered above the zero level gives a signal to take long positions.
References
- Bodie, Kane, Marcus. (2003). Investments, McGraw-Hill Primis
- Chenoweth T., Obradović Z., Lee S. Technical Trading Rules as a Prior Knowledge to a Neural Networks Prediction System for the S&P 500 Index
- Murphy J. (1991). Intermarket Technical Analysis, New York
- Murphy J. (1999). Technical analysis of the financial markets, New York Institute of Finance
- Yazdi S. H. M. & Lashkari Z. H. (2013). Technical analysis of Forex by MACD Indicator, International Journal of Humanities and Management Sciences, Vol. 1
Author: Anna Pietruszewska
