Ergodic Oscillator Indicator for MT4

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Ergodic Oscillator Indicator for MT4

Introduction to the Ergodic Oscillator Indicator

The Ergodic Oscillator (EO) is a momentum indicator which presents momentum direction two oscillator lines, much like the widely used Stochastic Oscillator. However, its similarities end there. This is because the Ergodic Oscillator uses a double smoothed True Strength Index (TSI) as its main oscillating line and is then paired with a signal line. This double smoothed line creates an oscillator which is characteristically very smooth. It also removes the compression within an oscillator range which is evident on the Stochastic Oscillator.

What is the Ergodic Oscillator Indicator?

This indicator plots the main Ergodic Oscillator line as a blue line and is paired with its signal line which is the red line. These two lines oscillate around its midline which is zero and can move from positive to negative. It also has markers at levels -20 and +20.

Ergodic Oscillator Indicator for MT4

How the Ergodic Oscillator Indicator Works?

The Ergodic Oscillator Indicator uses a formula which incorporates the True Strength Index to compute for its main oscillator line. It also applies two smoothing periods, which is preset at eight and five in this version.

It then calculates for the signal line which is a moving average line of the main Ergodic Oscillator line. This is also typically preset as an Exponential Moving Average (EMA) line to the main oscillator line.

How to use the Ergodic Oscillator Indicator for MT4

This indicator has four variables which can be modified within the indicator settings.

“First_R” refers to the first smoothing period of the Ergodic Oscillator, while “Second_S” refers to the second smoothing period.

“SignalPeriod” refers to the number of periods used to compute for the signal line.

“Mode_Smooth” refers to the type of moving average line used to compute for the signal line.

How the Ergodic Oscillator Indicator Works

This indicator can be used as a momentum reversal indicator. Traders can use the crossing over of the Ergodic Oscillator line and its signal line as a basis for a momentum reversal.

Reversal signals that develop beyond the -20 and 20 range can be considered as a possible mean reversal signal. However, the two lines can go well beyond this range, especially in a trending market.

Since this indicator is an oscillator, it can also be used as a basis for trading divergences.

Buy Trade Setup

When to Enter?

Identify a possible bullish divergence. Open a buy order as soon as the blue line crosses above the red line. Set the stop loss on the support below the entry candle.

When to Exit?

Close the trade as soon as the blue line crosses below the red line.

How to use the Ergodic Oscillator Indicator for MT4 - Buy Trade

Sell Trade Setup

When to Enter?

Identify a possible bearish divergence. Open a sell order as soon as the blue line crosses below the red line. Set the stop loss on the resistance above the entry candle.

When to Exit?

Close the trade as soon as the blue line crosses above the red line.

How to use the Ergodic Oscillator Indicator for MT4 - Sell Trade

Conclusion

The Ergodic Oscillator is a decent alternative to the Stochastic Oscillator. Since the line it plots oscillate freely around zero, the lines tend to have no compression unlike the Stochastic Oscillator which is compressed within the zero to 100 range. It also makes the lines more attuned to longer term trends and momentum reversals compared to the Stochastic Oscillator. Traders who prefer to avoid this compression can use the Ergodic Oscillator as an alternative.

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