The Derivative Oscillator Indicator is a popular technical analysis tool that combines elements of both the Relative Strength Index (RSI) and Moving Averages to provide traders with valuable insights into market trends and potential entry and exit points. In this article, we will discuss the definition, working, best settings, and how to trade using the Derivative Oscillator Indicator for MT5.
The Derivative Oscillator Indicator is a momentum-based technical analysis tool that measures the rate of change in an asset’s price relative to its moving averages. The indicator is designed to help traders identify potential trend reversals, overbought and oversold conditions, and potential entry and exit points for trades.
The Derivative Oscillator Indicator is calculated by first determining the difference between the price of an asset and its simple moving average (SMA) over a specified period. This value is then smoothed using a shorter exponential moving average (EMA) and compared to another smoothed EMA of the same period. The difference between these two smoothed EMAs is then plotted as the Derivative Oscillator.
The oscillator oscillates around a zero line, with positive values indicating upward momentum and negative values indicating downward momentum. Traders can use the Derivative Oscillator to identify potential trend reversals and entry and exit points by observing the oscillator’s movements and its relationship with the zero line.
The default settings for the Derivative Oscillator Indicator are as follows:
- RSI Period: 14
- Short EMA Period: 5
- Long EMA Period: 3
These settings can be adjusted to suit the trader’s preferences and trading style. Increasing the RSI period will result in a smoother oscillator, while decreasing the period will make the indicator more responsive to price movements. Adjusting the short and long EMA periods can help fine-tune the indicator’s sensitivity to changes in momentum.
How to Trade with the Derivative Oscillator Indicator
Zero Line Crossovers
One of the primary methods of trading with the Derivative Oscillator Indicator is to watch for zero line crossovers. When the oscillator crosses above the zero line, it indicates that upward momentum is increasing, and traders can consider opening long positions or closing short positions. Conversely, when the oscillator crosses below the zero line, it suggests that downward momentum is increasing, and traders can consider opening short positions or closing long positions.
Traders can also use the Derivative Oscillator Indicator to identify potential divergences between the oscillator and the asset’s price. Bullish divergence occurs when the price forms a lower low, while the oscillator forms a higher low, indicating potential upward momentum. Bearish divergence occurs when the price forms a higher high, while the oscillator forms a lower high, signaling potential downward momentum.
Combining with Other Indicators
To increase the effectiveness of the Derivative Oscillator Indicator and filter out false signals, consider combining it with other technical analysis tools such as support and resistance levels, trendlines, or additional momentum oscillators like the Stochastic Oscillator or the MACD.
The Derivative Oscillator Indicator for MT5 is a versatile and valuable tool for traders looking to capture potential market opportunities and improve their trading performance. By incorporating the Derivative Oscillator Indicator into your trading strategy, along with other technical analysis tools and sound risk management practices, you can better identify potential trend reversals and entry and exit points in the market. Download the Derivative Oscillator Indicator for MT5 for free today and start enhancing your trading strategy.Download indicator