Published on: October 18, 2024
“Bhav Bhagwan Che” means “Price is God,” and we believe this when it comes to trading.
But when it comes to technical analysis, with price action, indicators are also important to build conviction—whether they are leading or lagging indicators, they help traders make informed decisions.
One powerful indicator is the PMOX (Price Momentum Oscillator), a momentum-based indicator developed by Prashant Shah to identify strong trends and provide pullback trade opportunities.
Understanding this indicator can significantly improve new trader’s ability to recognise key market movements.
What is PMOX?
The PMOX indicator is a blend of a momentum indicator and an oscillator, which helps you identify the direction of the market trend and its strength. Unlike many oscillators, which may remain overbought during strong uptrends or oversold during strong downtrends, the PMOX is designed to overcome this issue, making it more reliable during trending markets.
The key feature of the PMOX is its ability to measure the strength of trends across short, medium, and long-term timeframes. Additionally, it captures the strength of recent price swings, making it highly valuable for identifying breakout opportunities or potential reversals.
Key Components of the PMOX Indicator
The PMOX indicator uses two types of dots to represent trading signals:
1. Green Dots – Indicate bullish (upward) momentum.
2. Red Dots – Indicate bearish (downward) momentum.
Additionally, the indicator defines certain extreme levels at 75 and 25:
Above 75 – signals strong momentum (either bullish or bearish, depending on the colour).
Below 25 signals weaker momentum, often indicating pullback opportunities.
How to Interpret PMOX Signals
Understanding how to interpret the green and red dots in the PMOX indicator can help traders identify key entry and exit points for their trades.
1. Green Dot Above 75: Bullish Continuation Breakout
When a green dot appears above the 75 level, it indicates strong upward momentum in the price, suggesting bulls control the trend.
Trade Opportunity: If the price crosses the high of the green dot column, it signals a bullish continuation breakout. This means that the uptrend is likely to continue, and traders may consider entering a long (buy) position.
Stop-Loss Placement: For risk management, a stop-loss can be placed at the Double Bottom Sell (DBS) pattern, ensuring that losses are minimised in case of a reversal.
2. Green Dot Below 25: Bullish Pullback Opportunity
A green dot below 25 indicates that while the price is down in the short term, it might be a temporary pullback in a broader uptrend.
Trade Opportunity: When the PMOX column reverses, it presents an opportunity to initiate a bullish trade (buy). Traders can take advantage of this pullback, anticipating the price may potentially head higher.
Stop-Loss Placement: The stop-loss can be set at the bottom of the green dot column, safeguarding the trade from significant losses if the pullback deepens.
3. Red Dot Below 25: Bearish Continuation Breakout
A red dot below the 25 level indicates the price is experiencing strong downward momentum, signalling a possible continuation of the bearish trend.
Trade Opportunity: If the price falls below the low of the red dot column, it signals a bearish continuation breakout. Traders may consider entering a short (sell) position to capitalise on the falling price.
Stop-Loss Placement: A stop-loss can be set at the Double Top Buy (DTB) pattern to limit potential losses if the bearish trend reverses.
4. Red Dot Above 75: Bearish Pullback Opportunity
A red dot above 75 suggests that although the price is up in the short term, it is likely a bearish pullback in a longer downtrend.
Trade Opportunity: When the PMOX column reverses, an opportunity is created to initiate a bearish trade (sell). Traders can anticipate the price to resume its downward trend after the pullback.
Stop-Loss Placement: The stop-loss can be placed above the high red dot column, ensuring that losses are minimised in case the pullback turns into a reversal.
For traders, the key takeaway is that PMOX simplifies the process of identifying market momentum and makes it easier to spot breakout and pullback opportunities. With practice, you can use PMOX to enhance your trading strategy and develop your insights into market trends.
