Derivative Oscillator Indicator
The derivative oscillator for MT5 is an ideal tool for determining the direction and strength of a trend. In addition, it is an ideal trend reversal detector.
Description
The derivative oscillator includes extended versions of the Relative Strength Index (RSI) and Moving Average Convergence-Divergence (MACD). The indicator can be used to analyze any instrument on any timeframe. It also works great with other technical analysis tools like price action and chart patterns.
How to find the derivative of an oscillator?
The oscillator is obtained by calculating the difference between the double smoothed RSI and the simple moving average of the double smoothed moving average. In addition, the MACD is calculated as the difference between the 26-period exponential moving average and the 12-period exponential moving average.
This improvement is intended to provide more accurate signals.
How to use the Derivative Oscillator
The derivative oscillator works like a normal MACD. In particular, a cross above the zero line indicates a buy opportunity, while a cross below indicates a sell opportunity. In other words, negative readings indicate a bearish move, while positive readings indicate a bullish market.
Checking the slope of the indicator helps determine the direction of the trend. An upward slope (negative to positive) is bullish, and a downward slope (positive to negative) is bearish. You can use the length of the bars to determine the magnitude of the trend. The more bullish bars, the greater the magnitude of the bullish trend. The larger the bearish bar, the greater the magnitude of the bearish trend.
You can also look for divergence to spot an impending trend reversal. Divergence occurs when the price rises and the indicator falls, and vice versa.
Example of real market trading
This figure shows the price chart of the euro against the US dollar. The light green and orange color of the indicator bars shows when the price fluctuates or consolidates. The indicator shows short bars indicating a weak trend. You must stay out of trades when the indicator approaches the zero line.
Eventually, sellers take control of the market. A strong downtrend is shown by the large red bars of the indicator. Note that the bars are slanted downward on the negative side (from the positive to the negative side). Similarly, the green bars of the indicator rise above the zero line during an uptrend. The size of the bars shows relatively strong uptrend momentum, as indicated by the arrows.
The market is currently showing bearish candles, which could be a trend reversal. The indicator’s bars have narrowed, indicating a weakening of the upward momentum. You should be ready to enter a sell trade as soon as the base of the indicator turns negative.
Conclusion
The derivative oscillator is useful in determining the direction of the market. A buy opportunity is determined when the indicator bars move above the zero line, and sloping bars below the zero line indicate a sell opportunity. The indicator can also be used to measure the strength of a trend by checking the length of a bar. By combining RSI and MACD, you get a two-in-one indicator that is simple, accurate, and fun to use.