OS/OB Indicator is Here!

OS/OB stands for "OverBought/OverSold." It is an indicator designed to replace your standard oscillator. This indicator can show the oversold and overbought signals as well as the direction of the current trend.

There is a simplified free version of OS/OB with limited number of parameters and no source code provided. Follow this link if you are interested in the basic version.

Why OS/OB?

To explain why OS/OB is better, consider the following illustration:

(Note: The indicator is complete with full documentation that explains its methods, as well as a list of recommended books that may prove helpful to the trader using this indicator. Although the image above presents some basic guidelines regarding its usage, we do not guarantee that those settings are optimal or profitable. Similar to other indicators found online, it would be up to the trader to customize the behavior of the indicator as he sees fit).

As we can see, OS/OB is a centered oscillator, while Stochastics is a banded one. We have a bearish trend, and OS/OB accurately shows the trend using its slope. On the other hand, Stochastics is overstaying on the oversold region. This behavior is common among most oscillators. This is what OS/OB seeks to avoid.

Where Do Oscillators like RSI and Stochastics Fail?

Now, let's analyze how Stochastics and RSI really work. The formulas can be intimidating at first glance, but they are very simple:

STOCHASTICS = 100 x [(CLOSE-LOWEST)/(HIGHEST-LOWEST)]

where:

  • CLOSE – last closing price
  • LOWEST – the lowest price within a given period
  • HIGHEST– the highest price within a given period

RSI = 100 - 100/[1 + (BULL/BEAR)]

where:

  • BULL – average number of positive price changes within a given period.
  • BEAR – average number of negative price changes within a given period.

They are not good at identifying the current trend. Why? Because their computations are purely based on price action! There are a number of reason why their price action approach to identifying overbought and oversold levels, like:

  • A tall candle
  • A steady trend, with gradual changes in price
  • A very long rally

Stochastics can be good at identifying minor fluctuations in price, but at the cost of failing to see the larger picture. Moreover, when the market is heavily sloped, it would often give the opposite signal. This is because the last closing price is always closer to the side of the extreme value where the slope points to. And we cannot simply put the Stochastics under reverse strategy since the indicator has no way of identifying whether the market is moving sideways or under a trend.

On the other hand, RSI could be a bit better than Stochastics since it does some averaging of bullish and bearish values. However, it fails to consider the relationship between price and time the way moving averages do. Trend and candles do not always go in one direction. In fact, seeing more bullish candles on a bearish trend (and vice versa) is not rare. This is where RSI often fails as it does not see the movement of price against time.

OS/OB: The Alternative

OSOB gives an alternative that can retain the advantages common to oscillators while avoiding their disadvantages. In order to understand how OS/OB works, here is the summary of the logic of the indicator:

  1. Consider a moving average with a known period.
  2. Calculate the slope of the moving average up to a certain period. This is the market trend.
  3. Add the slope (+/-) to the moving aveage. This is the modified moving average, and determines where the price should be if the current trend is steady.
  4. OSOB then shows the relationship between the modified moving average and the price of the security.

OS/OB seeks to provide a better alternative to commonly-used oscillators by traders. With the correct settings, having a modified version of moving average that acts as a dynamic trend line, and an oscillator that keeps itself in check with the moving average, OSOB can help the trader in identifying good entry signals with minimum lag and less noise.

New in OSOB2

In the new OSOB2 there is an adjustable reference line on top and bottom that makes it easier to find entry points, and to use the indicator in EAs.

Get Full version of OSOB2!

The full version contains fully customizeable parameters and full source code.

price of OSOB2 Full: US$ 30.00

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