True Momentum Oscillator

The True Momentum Oscillator indicator is a momentum-based technical analysis tool that calculates market strength using the delta of price relative to historical opens to provide a clearer picture of trends, reversals, and divergences.

Usage

The Usage section describes how the script can be used to identify market momentum and potential entry or exit points. The oscillator fluctuates between upper and lower boundaries defined by the selected length.

• Trend Identification: When the Main line is above the Signal line (highlighted in green), it indicates bullish momentum. Conversely, when the Main line is below the Signal line (highlighted in red), it indicates bearish momentum.
• Overbought/Oversold: The indicator features shaded zones near the extremities. When the oscillator enters the upper zone, the market may be overbought; when it enters the lower zone, it may be oversold.
• Crossovers: Trading signals are generated when the Main line crosses the Signal line. These events are marked with dots on the oscillator to highlight potential trend reversals or continuation points.

Details

The True Momentum Oscillator functions by comparing the current closing price to the opening prices over a user-defined lookback period. For each bar in the length, it assigns a value of +1 if the close is higher than the historical open, and -1 if it is lower. This accumulated data is then smoothed using multiple layers of moving averages.

By using the relationship between current price and historical opens rather than just raw price velocity, the oscillator aims to filter out noise. The implementation allows for three different moving average types (EMA, SMA, RMA) for the calculation and smoothing phases, offering flexibility in how reactive or smooth the resulting lines appear.

Settings

• Length: Sets the lookback period for the initial momentum calculation and defines the oscillator's boundaries.
• Calc length: Determines the length of the first moving average applied to the raw data.
• Smooth length: Sets the period for the final smoothing of the Main and Signal lines.
• Length moving average type: Selects the MA method (EMA, SMA, or RMA) for the primary calculation.
• Calc length moving average type: Selects the MA method for the secondary calculation layer.
• Smooth length moving average type: Selects the MA method for the final Signal line smoothing.

FAQ

How do I interpret the colored dots?

The dots appear whenever the Main line crosses the Signal line, indicating a shift in momentum. The color of the dot matches the direction of the new trend (green for bullish, red for bearish).

Can I use this for divergence trading?

Yes, users can look for discrepancies between price action and the True Momentum Oscillator peaks to identify potential trend exhaustion or hidden divergence.

How do I access this tool?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.