Polychromatic Momentum Oscillator (PMO)

Description:

The Polychromatic Momentum Oscillator (PMO) is a technical analysis indicator designed to assess the momentum of a financial asset. Developed by Carl Swenlin, it combines multiple exponential moving averages (EMAs) applied to the rate of change (ROC) of an asset's price over a specific period, typically 35 days. The PMO generates signals based on crossovers between the short-term and long-term EMAs, as well as the relationship between the PMO line and its signal line, often a 9-period EMA. Bullish or bearish signals occur when the PMO line crosses above or below the signal line, respectively, indicating shifts in momentum.

Input Parameters:

Length: Number of periods used in the calculation.
Price Source: The specific data points (such as open, high, low, or close) from each candle in a financial chart that an indicator uses for mathematical computations, enabling the calculation of metrics like the average over a specified period.

Use Case:

Trend Confirmation: Traders use the PMO to confirm the strength and direction of a trend. Bullish crossovers (PMO line crossing above the signal line) in an uptrend can signal continuation of the trend, while bearish crossovers (PMO line crossing below the signal line) in a downtrend may indicate further downward movement.
Divergence Analysis: PMO divergence occurs when the PMO line moves in the opposite direction of price movement. Traders watch for bullish divergence (lower lows in price accompanied by higher lows in the PMO) as a potential sign of a trend reversal to the upside, and bearish divergence (higher highs in price with lower highs in the PMO) as a potential signal for a trend reversal to the downside.
Overbought/Oversold Conditions: Traders use the PMO to identify overbought and oversold conditions in the market. When the PMO line moves far above the zero line, it suggests that the asset may be overbought and due for a potential pullback. Conversely, when the PMO line moves significantly below the zero line, it indicates oversold conditions, suggesting a potential bounce or reversal in price.

This feature can be used in: