True Direction Oscillator

The True Direction Oscillator, commonly known as TDO, is a popular technical analysis indicator used by traders to identify market trends. It is a trend-gauging oscillator that utilizes a simple yet effective formula to generate signals on the charts. This article aims to provide an in-depth analysis of TDO, including its calculation method, pros and cons, as well as a potential trading strategy that traders could incorporate TDO into their trading decisions.

What is the True Direction Oscillator?

The True Direction Oscillator (TDO) is an index that uses the principle of “Pure Momentum” to measure the price rate of change. Traditional technical analysis indicators like “Price Rate of Change” (ROC) or “Momentum” often give higher readings for ascending price movements than for descending ones, leading to an imbalance in the calculation. TDO addresses this issue by calculating pure momentum as a percentage using a simple two-step method. This calculation method results in a more balanced price rate of change calculation, which is crucial for traders and technical analysts to compare ascending and descending price movements.

TDO is an effective tool to compare different securities from different markets as it calculates pure momentum as a percentage. TDO panel calculation depends on five different periods, covering a wide range of market cycles, and is more effective at catching trends. TDO arrow appears when all TDO panel dots are in line for the first time, reducing the number of false zero-line cross signals. The Martingale Panel (MP) solves the problem of choosing a calculation period for any oscillator. It calculates five TDOs with different periods to cover a wide range of market cycles.

True Direction Oscillator Strategy

One potential strategy for trading with the True Direction Oscillator (TDO) is to use it as a trend-following indicator. Traders can look for signals where all TDO periods (10-20-40-80-160) are in-line, either to the upside or downside, as this indicates a strong trend. When this happens, the Smart Shadows (SSH) will change color to indicate that the trend is getting stronger.

Traders can then use this as a signal to enter a trade in the direction of the trend. Additionally, traders can use the TDO as a filter for false breakouts by only taking trades when the TDO crosses the zero line and the Martingale Panel (MP) is in line with the trend. By using the TDO in conjunction with other technical analysis tools and risk management tactics, traders can make informed decisions and potentially improve the accuracy of their trades.

Buy Signal

True Direction Oscillator Buy Signal
True Direction Oscillator Buy Signal
  • Wait for the MP to turn blue, indicating that all TDO values (10-20-40-80-160) are above zero and in-line.
  • Look for a blue upward arrow to appear on the chart when all TDO panel dots are in line for the first time, which reduces the number of false zero-line cross signals to their lowest number.
  • Enter a long position when the above requirements are met.
  • Set a stop loss for your position a few pips below the entry candle or according to your money management strategy.
  • You may hold your position as long as the TDO remains in bullish territory.

Sell Signal

True Direction Oscillator Sell Signal
True Direction Oscillator Sell Signal
  • Wait for the MP to turn red, indicating that all TDO values (10-20-40-80-160) are below zero and in line.
  • Look for a red downward arrow to appear on the chart when all TDO panel dots are in line for the first time, which reduces the number of false zero-line cross signals to their lowest number.
  • Enter a short position when the above requirements are met.
  • Set a stop loss for your position a few pips above the entry candle or according to your money management strategy.
  • You may hold your position as long as the TDO remains in bearish territory.

True Direction Oscillator Pros & Cons

Pros

  • Provides a balanced way of calculating price rate of change, allowing for better comparison of ascending and descending price movements.
  • Uses five different periods to cover a wide range of market cycles and catch trends.
  • Martingale Panel (MP) provides a more balanced and effective alternative to Multi Time Frame Panel (MTF).
  • Smart Shadows (SSH) provide a clear indication of when all TDO is in-line with either the upside or downside, allowing for stronger trend analysis.
  • The arrow signal feature reduces the number of false zero-line cross signals.

Cons

  • Requires a good understanding of technical analysis and charting to use effectively.
  • May generate false signals in choppy or ranging markets.
  • Only provides a snapshot of momentum at a particular moment in time and should be used in conjunction with other indicators and analysis techniques.
  • May not be suitable for all trading styles and strategies.
  • Requires customization of the Martingale Panel to suit individual preferences and markets.

Conclusion

In conclusion, the True Direction Oscillator is a useful technical analysis tool for traders looking to accurately measure momentum in the markets. Its calculation method helps to balance the price rate of change between ascending and descending price movements, which helps it to catch trends. The Martingale Panel is a unique feature that calculates five different periods of the TDO to cover a wide range of market cycles. The TDO also has useful features such as the Smart Shadows and Arrow Signals, which help traders identify strong signals. However, like any technical analysis tool, the TDO also has its limitations, such as its generation of false signals in choppy or ranging markets. Traders should always exercise caution and use the TDO in conjunction with other technical analysis tools and risk management strategies.

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