What is the Rahul Mohindar Oscillator (RMO)?
The Rahul Mohindar Oscillator, or RMO for short, detects trends in financial markets and is designed to work on open-high-low-close charts for a wide variety of securities, including stocks, commodities, and FX.
It was developed by none other than Rahul Mohindar himself, who is director of Viratech software and an active trader who appears frequently on CNBC India.
While many mistake the RMO for a standalone indicator, it is actually more of a rule based trading system.
This system uses a series of oscillators to establish short, medium, and long-term trends.
Within these time frames, trading recommendations are made according to the momentum and overall level of the oscillators.
The oscillators derive from multiple smoothed moving averages.
As a partner of MetaStock, we are currently offering a 23% discount on the latest RMO ATM 3.0 trading system, which you can claim through the link below. You can read more about this system at the bottom of this article.
Rahul Mohindar Oscillator (RMO) Trading System
The RMO system consists of 4 pillars:
- RMO
- Swing Trade 3
- Swing Trade 2
- Exit Swing Indicator
I explain each of them below.
RMO
The Rahul Mohindar Oscillator (RMO) detects the long-term, or primary, trend of a security.
It was designed to smooth out short-term market swings and only indicate major trends.
Swing Trade Indicators
There are 3 different swing trade indicators that help detect shorter-term trends within the long-term trend.
Since MetaStock’s RMO system incorporates the 2 “slowest” of these, I will only focus on these 2.
Read my MetaStock review for a deeper dive into this platform.
Swing Trade 3
The swing trade 3 indicator is the “slowest” swing trade indicator, and therefore detects long-term trends.
Swing Trade 2
The swing trade 2 indicator is the second “slowest” swing trade oscillator, and therefore detects medium-term trends within the longer-term trend.
Whenever the swing trade 2 and swing trade 3 indicators cross, there is a potential short-term trading opportunity.
Learn how to use MACD effectively for similar crossover strategies.
Exit Swing Indicator
The exit swing indicator works as a trailing stop-loss measure. This ensures that traders lock-in some profits after a big rally. It also works quite well as an exit signal.
How to Use the RMO in MetaStock
To open any chart in MetaStock with the RMO indicators automatically displayed, select the “RMO Trade Model” from the template drop-down menu. Then click “Open Chart”.
MetaStock includes charts for a wide variety of securities including stocks, commodities and Forex.
This is what the weekly chart of Apple looks like with the RMO template. I changed the scale to a logarithmic scale so you can see the historical trends more clearly.
- First Panel: The green oscillator in the top panel is the RMO
- Second Panel: The pink oscillator in the second panel is the swing trade 2 indicator, while the blue oscillator is the swing trade 3 indicator
- Third Panel: The dark green oscillator in the third panel is the exit swing indicator.
- Fourth (Main) Panel: Chart of security
- Fifth Panel: The blue histogram in the bottom window is the volume of the security, and the red line is the 50-period moving average of the volume
Rahul Mohindar Oscialltor (RMO) Explanation
Long-term trend
Remember, we use the RMO to detect the primary trend.
When the RMO is above zero, a bullish, long-term trend is in place. These are highlighted by the green “RMO bullish” ribbons across the bottom of the chart.
Conversely, when the RMO is below 0, a bearish, long-term trend is in place. The stripy red ribbons along the bottom of the chart indicate these areas.
Long-term investors that aren’t interested in trading in and out of stocks may find this useful for detecting major trends and reversals.
Using an oversold RSI stock screener would complement the bullish reversals.
Medium-term trend
When the swing trade 2 (pink) indicator is above 0, a bullish, medium-term trend is in place.
These areas are highlighted by the blue candles on the chart.
I have taken the swing trade 3 indicator out so you can see this more clearly.
Conversely, when the swing trade 2 indicator is below 0, a bearish, medium-term trend is detected.
These areas areas are highlighted by the red candles.
Note how the medium-term trend doesn’t always line up with the long-term (RMO) trend.
This helps you trade market swings within long-term trends if you wish to.
Short-term trend
When the swing trade 2 line crosses above the swing trade 3 line, this generates a short-term buy signal. These are highlighted by the blue arrows on the chart.
On the other hand, when the swing trade 2 crosses below the swing trade 3, this generates a short-term sell signal. These are shown by the red arrows.
The chart below shows you where these signals occur. I changed the swing trade indicators to lines instead of histograms so you can see the crossovers more easily.
As you can see, these signals are ideal for swing trading.
Exit Swing Indicator
The exit swing indicator (ESI) helps you take profits after a trend has set in.
Essentially, it tells you where to set stop losses after you’ve made some money:
- If you’re long, you should set this at the low of the candle that corresponds to the ESI dropping below 75.
- If you’re short, you should set the stop loss at the high of the candle corresponding to the ESI breaking above 25.
As you can see, the ESI tends to get you out quite early.
To ensure you don’t miss too many gains, Rahul recommends only taking partial profits when the ESI tells you.
Rahul Mohindar Oscillator Buy Conditions
There are a number of different ways to trade the RMO. Largely, it depends on what type of investor/trader you are.
You could just use 1 of the indicators, or a combination. For example, you could trade the RMO and bar colours individually, or you can use them together in a system.
To help guide you, here are some potential buy setups:
- Wait for all 3 indicators to point in a bullish direction before buying
- Trade buy signals (blue arrows) only on blue candles
Rahul Mohindar Oscillator Sell Conditions
Likewise, here are some possible sell setups:
- Sell when a candle turns red
- Only sell when the RMO turns negative
For a better confirmation of short-term momentum, Rahul Mohindar suggests waiting for the high of a blue buy candle to be broken before buying, and the low of a red sell candle to be broken before selling.
As you can see in the chart below, this strategy did well at keeping you in the long-term trend.
MetaStock RMO Expert Advisor
If you’re unsure how to interpret the RMO system at any given time, MetaStock’s expert advisor can help you.
If you want to know how to create custom indicators with MetaStock’s expert advisor, this article shows you how to do it with the historical volatility indicator.
By clicking on “Commentary” for the RMO expert advisor, you get a little summary of how you should interpret the current setup.
MetaStock RMO ATM 3.0 Trading System
The RMO ATM (automated trend modules) 3.0 system, is an updated, supercharged version of the RMO, which includes automated, real-time scanning and alerts through the PowerScreener app.
This means you’ll never miss profitable breakouts and reversals.
The new suite of indicators, signals, and methodologies improve on the standard RMO system by:
- Quickly identifying trend breakouts with the ATM breakout catcher
- Identifying tops and bottoms based on breakouts with the ATM counter trend indicator
- Identifying reversals quickly based on volume change with the new ATM SWI (Strength Weakness Index)
- Using multiple time frames to understand the direction of price and the best time to enter a trade with the new TrendDecider
If you’d like to purchase this system as a MetaStock add-on, then follow this link for a 23% discount.