Introduction
When I started StockManiacs in 2009, I stumbled upon the idea of the 3-10 oscillator from the AfraidToTrade blog, thanks to Corey Rosenbloom, a Chartered Market Technician. This is a modification of the standard MACD indicator that can identify trend reversals in the market. In this post, I will show you how this oscillator can help identify trend reversal patterns and how it differs from the traditional MACD indicator.
What is the 3-10 Oscillator?
The 3-10 oscillator is created by changing the normal MACD period of 12-26-9 to 3-10-16. Corey Rosenbloom has shown an example of creating the oscillator on the Dow Jones chart by hiding the price and using 3-period EMA and 10-period EMA on the upper pane and side by side using the 3-10-16 MACD indicator in the same chart on the lower pane. This oscillator invented by Corey can spot divergences much earlier than a normal 12-26-9 MACD indicator.
Easy Trend Reversal Patterns with the 3-10 Oscillator
The best trend reversal pattern is divergence, and the 3-10 oscillator can spot it easily. Let’s take a look at a screenshot of the Bank Nifty index from December 29th, 2016, when the closing price was 18033.20.
As per divergence trading, Bank Nifty was a buy based on the end-of-day charts from December 29th, 2016, at the closing price of 18033.20. If you had bought at that time, you could have stayed in the long trade until the 3-period EMA crossed back above the 10-period EMA on the upper pane. This crossover occurred on March 23rd, 2017, marking the exit long at a price of 20895.50. The profit was 2862.30 points, which, when multiplied by the lot size of 40, equals Rs. 1,14,492 per lot.
Identifying Divergence with the 3-10 Oscillator Histogram
The 3-10 histogram can give a signal even before the 3-10 oscillator crossover. This allows traders to identify divergence and potential trend reversals even earlier. See the image below for a clear picture of the divergence:
You can use charting platforms such as Amibroker or Zerodha Kite to incorporate this indicator into your trading strategy.
FAQs on 3-10 Oscillator Trend Reversal Patterns
To use this oscillator, first, decide how much of the chart’s historical data to include in the calculation. Then choose whether to calculate a simple or exponential moving average (EMA). Once these details have been decided, apply these settings to your chart and observe a few cycles of bullish or bearish behavior by viewing where the indicator line is relative to its recent highs and lows.
The 3-10 moving average oscillator is a technical analysis tool that uses several averages with different lookback periods. It simply uses 3 bars and 10 bars combination. This method compares shorter-term price momentum with longer-term trends. This also allows traders to see overbought/oversold conditions more clearly as well as potential trend reversals.
Linda Bradford Raschke’s (LBR) version of MACD uses the 3-10 settings instead of the default 12-26 setting. It is used for faster trend cycle detection. It provides signals based on the direction from where it leaves prior high/low points during retracements or consolidation phases before resuming its primary move higher or lower again.
Ultimately, choosing which oscillators work best depends largely on individual trader preferences within their own strategy design. We recommend backtesting against historical market data combined with a discretionary assessment so that specific parameters can be established that optimize performance per chosen ruleset criteria entailed therein.
Conclusion
In conclusion, the 3-10 oscillator is a useful tool for identifying trend reversals and divergences in the market. With its ability to spot these patterns earlier than a traditional MACD indicator, traders can make more informed trading decisions and potentially increase their profits. Incorporate this oscillator into your trading strategy and see how it can benefit your trades.
Hi Sir,
Main focus of this oscillator is divergence right . In positive divergence where to buy sir?? Please reply
After divergence, you can buy the crossover or if you are using the histogram, buy zero line crossover after a divergence.
i stay in kalyani only can i come to ur residential office and learn trading that will be very helpful for me thank you…
You can WhatsApp us at +91-9674321856 and schedule an appointment.
Thanks for posting. I must point out that C. Rosenbloom isn’t the man behind the ‘3-10’ oscillator. He mentioned such in the cited article now retrievable at the *Wayback Machine*: https://web.archive.org/web/20120503140202/http://blog.afraidtotrade.com/how-do-i-create-the-310-oscillator/.
More distinction, but not all (see below), goes to Linda Bradford Raschke who introed *her* ver. of the indicator in the book *Street Smarts* (publ. ’96) co-authored with Larry Connors.
In ch. 9 titled “The ‘Anti’,” she tells of her tweaking the 3-10 to her liking. For this reason there’s a named ver. of her interpretation aptly called the ‘LBR 3-10.’ B/f running with her own 3-10, she relates in the book as having used the oscillator’s std settings on her charts dating to ’81. It reads to me that either Gerald Appel (father of MACD) or George Lane (Stochastics) deserves highest mention as 3-10’s inventor.
Thank you for your detailed explanation Bruce. Much appreciated.