Trend Fusion Oscillator
One of ChartPrime’s most iconic oscillators; this oscillator uses an amalgamation of price and volume to give market participants useful insight into possible future price action. It is designed in the format of a classical oscillator to be recogniseable and have a easy learning curve. It is made up of multiple components that are covered below:
1. Trend mode
The price volume oscillator uses an adaptive calculation to signify when price is entering a downtrend or and uptrend. When the price volume oscillator intersects with the adaptive plot the color of the price volume band will change to signify an uptrend or a down trend. Green being an uptrend and red being a downtrend.
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| The Fusion trend wave showing market direction |
2. Divergences
The two types of divergences identified with the TMO are:
Regular Bullish Divergences: This occurs when the price forms lower lows while the oscillator forms higher lows. It indicates a weakening downward trend and suggests a potential upward reversal. In a regular bullish divergence, even as prices continue to decrease, the oscillator's higher lows suggest diminishing bearish momentum.
Regular Bearish Divergences: This happens when the price creates higher highs, but the oscillator makes lower highs. It signals that the upward trend is losing momentum and might reverse into a downtrend. Regular bearish divergences are often seen as opportunities to short or exit long positions, as they suggest the bullish strength is waning.
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| Divergences shown on the Fusion Wave |
When the price volume oscillator ribbon peaks and valleys are diverging with price action a thin line will connect the two diverging peaks or valleys to indicate to market participants that there is a higher probability of a reversal. Divergences can be used in a classical fashion for trading.
For example; a red line connecting two peaks suggests the price might reverse shortly and a green line connecting two bottoms may suggest the price might bounce upwards in the near future.
3. Areas of reversal
These signals incorporate an algorithm that takes the median length of the assets trends, average true range, price deviation, volatility, and gap conditions, to signal areas with high a probability of reversal. Reversal signals are self explanatory and are very useful when used in confluence with other factors. These are shown as red and blue dots. A red dot therefore would suggest momentum and money flow are exhausted and we might see a pull back or bearish reversal in the market. A blue dot would suggest the contrary and we might be due a bullish bounce in the market.
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| Reversal dot forecasting bearish reversal |
Always look for confluence and set sensible stop losses when trying to scalp reversals in markets. Predicting perfect market bottoms isn't a reasonable goal.
MFI
In the background of the oscillator there is a MFI histogram showing the bullish or bearish money flow in the market. A green historgram suggests bullish and buying pressure is appearing whereas red would suggest sellers are entering the market.
Confluence Trading With The TFO
When using the TFO building up confluence between the price action and volume component parts of the oscillator is key. For example looking for when both the MFI and the main wave are both positive could give better confluence for a long position when trading. This oscillator is powerful standalone all encompassing tool.