Indicator Toolbox – DecisionPoint Price Momentum Oscillator

DecisionPoint Price Momentum Oscillator

The original Analysis Toolbox articles discussed the various market cycles including trends and continuations. This part of the The Trader’s Indicator Series focuses on the Indicator Toolbox, as we will discuss various indicators that are found on most trading platforms. We will discuss the indicator in the context of the chosen market, and if it resonates with you, please continue to do your own analysis with it. Trading successfully is all about feeling comfortable with a methodology and using that system repeatedly even when boredom sets in. I will be discussing indicators in alphabetical order that can be found on the MotiveWave platform. This week its the turn of the DecisionPoint Price Momentum Oscillator (for a free 2-week trial CLICK HERE)

The DecisionPoint Price Momentum Oscillator (PMO) is based on the Rate of Change. Calculation: PMO = short Period MA of (10* long Period MA of (((Today’s Price / Yesterday’s Price) * 100) -100)) Signal = signalPeriod MA of PMO

DecisionPoint Price Momentum Oscillator

INTRODUCTION

The DecisionPoint Price Momentum Oscillator (PMO) is based on a Rate of Change calculation to track changes in trend strength. The PMO is a smoothed version of the Rate of Change. When price moves up, PMO moves up with the positive price changes. When price moves down, PMO declines with the negative price changes.

The PMO oscillates around the zero line. In the chart above, the PMO is blue above the zero line and red below the zero line. A blue PMO implies bullish trend and a red PMO implies bearish trend.  The signal line provides additional signals when the signal line (red) crosses the PMO line (black).

The PMO is based on exponential moving averages and it lags. The higher the smoothing, the greater the lag. Lagging means that price turns first before the PMO crosses the zero line but earlier signals can be generated using the signal line.

The Daily USD/JPY chart below has the PMO and the DeMarker on it, which we discussed in the previous article. A quick comparison of these two oscillators shows the DeMarker being more sensitive to price changes. Also the scale is from 0 to 100 for the DeMarker, whereas the PMO goes above and below the zero line. Since the DeMarker is more sensitive than the PMO, it is important not to get lured into going against the trend too prematurely with the DeMarker indicator. In a strong bullish trend the DeMarker will bounce above 70, and the PMO will just continue to rise as evident in the USD/JPY chart below.

image of decisionpoint price momentum oscillator used on USDJPY forex trading chart

USING THE TOOL

TRENDS:

The first step is to look for signs that a market is trending or about to trend. This can be done by looking at the fundamentals and focusing on markets that are starting to move. Create a watch list. After deciding that a stock sector, currency grouping or commodity is about to trend, then use the PMO indicator to join the trend.

In the USD/JPY Daily Chart above, look at the trend on the left. When the PMO indicator crosses the zero line, that would be a conservative time to start paying attention to a possible move up. To join the trend, take note of when the PMO crosses above the red signal line when the PMO is blue above the zero line and consider buying. In a strong uptrend, consider taking profits when the PMO crosses below the signal line, as in the USD/JPY example on the left of the chart. In fact, that is also a good reversal point when the trend has possibly run out of steam. Using a 123 pattern on a smaller time frame could be a confirming trigger for a sell.

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Jody
Jody Samuels, a former institutional trader for a US Investment Bank, and author of The Trader’s Pendulum, The 10 Habits of Highly Successful Traders, founded FX Trader’s EDGE in 2006. A premiere, global online Trading and Coaching School, FX Trader’s EDGE is home to the Forex Foundation and Elliott Wave Ultimate, progressive educational training programs to assist traders of all levels in the markets. FX Trader’s EDGE offers individual and institutional clients proprietary tools, services and education to trade Forex, CFD’s and Stocks online. One-on-one coaching is also available.
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Jody

Jody

Jody Samuels, a former institutional trader for a US Investment Bank, and author of The Trader’s Pendulum, The 10 Habits of Highly Successful Traders, founded FX Trader’s EDGE in 2006. A premiere, global online Trading and Coaching School, FX Trader’s EDGE is home to the Forex Foundation and Elliott Wave Ultimate, progressive educational training programs to assist traders of all levels in the markets. FX Trader’s EDGE offers individual and institutional clients proprietary tools, services and education to trade Forex, CFD’s and Stocks online. One-on-one coaching is also available.

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