XO Indicator

The XO Indicator, also known as the exhaustion Oscillator, was developed by Dr. Alexander Elder based on the manual written by Victor Devilliers and officially used in the market in the early 2000s.

What is the XO Indicator?

The XO Indicator is a technical analysis tool used in Forex trading to identify potential buy and sell signals. It is based on the idea that market trends tend to exhaust themselves before reversing.

XO indicators are derived from point-and-figure indicators. They share the same name because the charts are represented by the same symbols, which may cause confusion. However, they are essentially the same as point-and-figure indicators.

What are the Point and Figure charts?

Point and figure charting is a technique over 100 years old, first written about by Hoyle in 1898 in his book “The Game in Wall Street.” The first dedicated manual for this technique was written by Victor Devilliers in 1933. Chart craft Inc popularized the system in the 1940s, and the company still provides daily point-and-figure services for the US market today. The technique has evolved from a price recording system to a charting method and is now commonly represented using Xs and Os, with Xs representing rising prices and Os representing falling prices.

Key Features of the XO Indicator

  • The XO Indicator is based on the Relative Strength Index (RSI) and Moving Average (MA) indicators.
  • It uses a histogram to display the difference between the RSI and MA, with positive values indicating bullish momentum and negative values indicating bearish momentum.
  • It is designed to identify potential trend changes before they happen, allowing traders to make more informed decisions.

XO Indicator Strategy

Buy Signal

  • The XO Indicator sends a buy signal when the histogram crosses above the zero line, indicating bullish momentum.
  • It also sends a buy signal when the histogram turns positive after being negative, indicating a potential trend reversal.
XO Indicator Buy Signal
XO Indicator Buy Signal

 

Sell Signal

  • The XO Indicator sends a sell signal when the histogram crosses below the zero line, indicating bearish momentum.
  • It also sends a sell signal when the histogram turns negative after being positive, indicating a potential trend reversal.
XO Indicator Sell Signal
XO Indicator Sell Signal

XO Indicator Pros & Cons

Pros

  • The XO Indicator is easy to understand and use.
  • It can identify potential trend changes before they happen, allowing traders to make more informed decisions.
  • It is based on well-established indicators (RSI and MA) which have a proven track record.

Cons

  • The XO Indicator is a lagging indicator, meaning it may not provide signals in real-time.
  • It is based on historical data, so it may not be as accurate in predicting future price movements.
  • It may generate false signals in a volatile market.

Conclusion

The XO Indicator is a technical analysis tool used in Forex trading. It is based on the idea that market trends tend to exhaust themselves before reversing and is derived from point-and-figure indicators. It uses a histogram to display the difference between the Relative Strength Index (RSI) and Moving Average (MA) indicators and is designed to identify potential trend changes before they happen. The XO Indicator has advantages like easy to understand and use, but also has drawbacks such as being a lagging indicator, based on historical data and may generate false signals in a volatile market.

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