Pivot Mean Oscillator (PMO) is a unbounded zero-centered oscillator that provides a quick and normalized measure of divergence between two spreads. Detailed description of the mathematical formulation along with some comments and experiments can be found in this article .
Trading aspects
This version of PMO is tuned on spreads relative to Close and Open price signals against their cumulative moving average (CMA). Positive PMO(m,n) values means that last (normalized) m Close prices are higher than last (normalized) n Open ones, thus detecting long positions while the opposite accounts for short positions. Upward and downward PMO reversals can be considered similar to oversold and overbought conditions found by RSI.
A very basic and simplified set of IF THEN rules for trading with PMO is the following:
- IF upward reversal happens below zero centerline THEN early warning BUY
- IF downward reversal happens above zero centerline THEN early warning SELL
- IF upward crossing zero centerline THEN recommended BUY
- IF downward crossing zero centerline THEN recommended SELL
Furthermore:
- as a rule of thumb, when a spike occur in PMO values it is highly probable that market will react in the opposite direction.
- in order to reduce lag, it is useful to minimize the number of last Close prices to consider (e.g. PMO(1,8)). As a drawback, this reduces smoothness of the PMO signal.
Key features
- applicable in all timeframes
- applicable to all symbols
- useful both for scalping and intraday strategies
- useful for finding spikes, local maxima and minima
- useful for comparing any couple of FX signals (due to normalization, see article for details)
- easy-to-use with minimum setting
- free
Input Parameters
- startingTime: datetime of the first bar to consider for calculation
- MA_close: number of last close prices to average
- MA_open: number of last open prices to average
- data_logging: flag to enable data recording from startingTime to now for data analysis purposes
- filename: name of the file used to archive data
