Price momentum Oscillator (PMO) measures the acceleration of the share price and direction of the trend. This is the leading indicator.
Its will display, Overbought, oversold, buying and selling Position with the trend.
Price Momentum Oscillator Setting
- Field: The default field is ‘close’. The Period closing price will take to calculate this Indicator line. Other field types also available like Open, close, high, low, etc etc.
- smoothing period: The default smooth Period is 35. The 35-period closing price will take to calculate this Indicator.
- Double smoothing period: The default Double Smoothing Period is 20, a 20-period closing price will take to calculate this indicator.
- signal period: The default signal period is 10. The 10period PMO line value will take to calculate the signal line.
- PMO: This is the indicator Line color.
- PMO signal: the Signal line color.
- show zones: It will highlight the Overbought and oversold zone.
- Overbought: this is the Overbought zone setting, by default above the 2.5 is the Overbought zone.
- Oversold: this is the oversold zone setting, by default below -2.5 is the Oversold zone.
Price Momentum Oscillator Calculation
I’m sharing basic calculation of this indicator is, the PMO line is calculated by 35 and 20-period smoothing prices. And the signal line is calculated by the PMO line. The signal line is the 10 period EMA of the PMO line.
How PMO works
If the price is accelerated by the same value from the previous value then the indicator line will be Flat. Example: if you are inside the train. And the train speed is increasing is the same value as the previous Speed was. Then you won’t feel any acceleration. Similarly, in this indicator, if the share price is increasing or decreasing as before then Indicator line will be Flat.
If the share price is increasing or decreasing then the previous increased or decreased value then the indicator line will move up or Down.
What PMO indicator tells you,
- This indicator has two lines. 1) PMO 2) PMO signal line. PMO line will show you share activities, and the crossing with the signal line helps to buy or sell signal.
- When the PMO line is moving below -2.5, this is the Oversold zone, and above the 2.5 is the Overbought zone.
Price Momentum Oscillator trading strategy
- In the Oversold zone, if the indicator line started reversal up. And after crossing -2.5 level. You can buy the share.
- In the Overbought zone, if the indicator line started moving down, and after crossing 2.5, level, you can short sell the stock.
- In the Overbought zone, you may see a breakout of the share price. And after Breakout share price will continue to rise.
- In the oversold zone, you may see the share price breakdown, after breakdown share price may fall more.
- When the PMO Line is crossing the signal line and moving upward direction. After crossing the 0 line, you can take a buying position.
- When the signal line crossing the PMO line and moving Downward direction, after crossing the 0 line, you can take short-selling Position.
- bullish divergence: when the share price is moving Downward direction but Indicator is moving upward direction, this is a bullish divergence. Share price reversal may soon.
- Bearish divergence: when the share price is moving upward direction but Indicator is moving down. This is the Bearish divergence. Share price reversal may soon.
The price momentum oscillator is to calculate the acceleration of the share price. And show you buy-sell, Overbought and oversold zones.
Use this indicator with other Indicators also for better trading signals.
*Read Related Post for more information.