My Favorite Oscillator Indicator

2021-11-12 | Sam Shames

Let’s talk indicators.

Specifically, momentum oscillator indicators. 

There are three directions a market can go: up, down, and sideways.

Most momentum indicators are designed to work in either trending markets or choppy, sideways markets. Therefore, it’s important as traders that we have both of those scenarios covered with what we consider to be the best of both worlds.

In my decade of trading experience, I have found what I believe to be the best indicator for trending and choppy markets.

Let’s talk more about the value of having top-shelf momentum indicators and my favorite – the TrendOscillator.

What is an Oscillator?

An oscillator indicator is designed to show the momentum of a stock. Typically, momentum can be visualized as “waves” with a corresponding crest and trough. Our goal as traders is to be able to understand what we are seeing and what action to take… An oscillator, and specifically for me the TrendOscillator, helps define a stock’s momentum and tells us what to do.

How Do Oscillators Work in Trading? 

Here is an example of the TrendOscillator doing the basic thing a momentum indicator should do: showing the quality of the trend of a stock. 

XLC 2-Day Chart]

 

In the example above we can see a 2-day chart of the XLC (Communications ETF). This is an ideal example of what the TrendOscillator is designed for. Yes, we see a good uptrend in the form of bullishly stacked moving averages that are sloping up. But many things look like this. So how can we find the best of the best?

And that’s what the TrendOscillator does. Even though many stocks in this market have clear uptrends based on moving averages, the TrendOscillator lets us “look under the hood” and confirms what stock actually has the best trending structure and that tells us where we should be focusing.

However that’s not all the TrendOscillator does…

Why I Like the TrendOscillator Best 

In the example below we can see a 4-hour chart of the ZB (30-year bond futures contract).  

ZB 4-Hour Chart]

 

There is more nuance than just an uptrend. We see a downtrend that turns into a sideways chop, that then transitions to an uptrend… and the TrendOscillator worked in all those situations.

First, the downtrend… We see the TrendOscillator confirming the downtrend and implying that every kickback to falling exponential moving averages (EMA) should be sold. That’s the easy one as that’s what the indicator was designed to do.

Next, we see a positive momentum divergence develop where price made a new low but the indicator made a higher low (shown with the arrows). 

Positive divergences are the first clue that a major change is about to occur. Without the proper momentum indicators, or by just looking at price/moving averages, most traders would never see this change developing. The positive divergence is our first clue that if we’re short we want to start to cover, or if we want to get long that’s the time to begin focusing closely for entry.

From the divergence develops a sideways market. Remember that most momentum indicators would break down in this environment. But not the TrendOscillator. Not only does it not break down in the way other indicators would during the sideways chop, but it continues to give us indication that the momentum is building up in a bullish way. That is evident by the rising green/red lines and that the green is holding the red line as rising support.

Lastly, we see the trend change that developed from the divergence and chop as price starts to make higher highs and higher lows.

Most of this information would be invisible to traders without the proper tools to see it and take advantage of it. 

This is the reason that I came up with and use the TrendOscillator in all my trades. Unlike other momentum indicators, I have found that the TrendOscillator is not only more reliable than others in trending markets, but it also works great in sideways markets.

It was designed to measure trend quality. But the fact that it also works in sideways markets is just the icing on the cake – and why it’s my favorite momentum indicator.

 

It’s important for a trader to be equipped with the right tools to tackle any market, and I believe my indicators get those results for me and can help other people too. 

Check out my Take the Money and Run course, where I reveal how to exploit specific patterns and identify setups across multiple time frames. In this class, you’ll also receive the Trend and Range Oscillator indicator developed to specifically identify stocks forming distinct patterns signaling momentum with clear support and resistance levels.

I look forward to seeing you in the class and in the live trading sessions where we will put the knowledge and tools from the class to work. 

Take The Money And Run