Pivot Mean Oscillator

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