TMO (True Momentum Oscillator)

TMO ((T)rue (M)omentum (O)scilator)
Created by Mobius V01.05.2018 TOS Convert to TV using Claude 3.7 and ChatGPT 03 Mini :
TMO calculates momentum using the delta of price. Giving a much better picture of trend, tend reversals and divergence than momentum oscillators using price.

True Momentum Oscillator (TMO)
The True Momentum Oscillator (TMO) is a momentum-based technical indicator designed to identify trend direction, trend strength, and potential reversal points in the market. It's particularly useful for spotting overbought and oversold conditions, aiding traders in timing their entries and exits.

How it Works:
The TMO calculates market momentum by analyzing recent price action:

Momentum Calculation:
For a user-defined length (e.g., 14 bars), TMO compares the current closing price to past open prices. It assigns:

+1 if the current close is greater than the open price of the past bar (indicating bullish momentum).

-1 if it's less (indicating bearish momentum).

0 if there's no change.

The sum of these scores gives a raw momentum measure.

EMA Smoothing:
To reduce noise and false signals, this raw momentum is smoothed using Exponential Moving Averages (EMAs):

First, the raw data is smoothed by an EMA over a short calculation period (default: 5).

Then, it undergoes additional smoothing through another EMA (default: 3 bars), creating the primary "Main" line of the indicator.

Lastly, a "Signal" line is derived by applying another EMA (also default: 3 bars) to the main line, adding further refinement.

Trend Identification:
The indicator plots two lines:

Main Line: Indicates current momentum strength and direction.

Signal Line: Acts as a reference line, similar to a moving average crossover system.

When the Main line crosses above the Signal line, it suggests strengthening bullish momentum. Conversely, when the Main line crosses below the Signal line, it indicates increasing bearish momentum.

Overbought/Oversold Levels:
The indicator identifies key levels based on the chosen length parameter:

Overbought zone (positive threshold): Suggests the market might be overheated, and a potential bearish reversal or pullback could occur.

Oversold zone (negative threshold): Suggests the market might be excessively bearish, signaling a potential bullish reversal.

Clouds visually mark these overbought/oversold areas, making it easy to see potential reversal zones.

Trading Applications:
Trend-following: Traders can enter positions based on crossovers of the Main and Signal lines.

Reversals: The overbought and oversold areas highlight high-probability reversal points.

Momentum confirmation: Use TMO to confirm price action or other technical signals, improving trade accuracy and timing.

The True Momentum Oscillator provides clarity in identifying momentum shifts, making it a valuable addition to various trading strategies.