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The Triple Trend Oscillator (TTO) is a trend following oscillator devised to identify the exact technical strength of a stock or indices over multiple timeframes and can also be used as a trend and momentum indicator. The sole purpose of this indicator is to keep positions on the right side of trend and at the same time indicate trend quality. Like many other technical indicators, TTO oscillates around a zero line but with a difference. It incorporates trend oscillators which mimic the trend momentum across three timeframes, plotting them simultaneously, thus giving an overall view of the trend position. Thus it provides a better indication of trend strength which is not possible when trends are viewed in isolation. The main components of TTO are the three trend oscillators, which plot the three trends : Major, Intermediate and Minor trend. As indicated by TTO, a stock would be extreme bullish when all the three trend lines are above zero and extreme bearish when they are below zero. Between the extreme bullish/bearish phases, TTO exhibits varying degree of trend quality depending on the position of the three trend oscillators. Each sub-trend oscillates around its main trend, denoting the period of uptrend/downtrend in the main trend. Thus if the sub-trend rises above the main trend and remain there for an extended period, it has the effect of pulling up the main trend upward and vice-versa. Within the major and intermediate trends, TTO shows trend swings which are indicated by the trigger line, which acts as a leading indicator. Trading position can be taken in the direction of the larger trend based on the zero crossover of the trigger line. When trigger line crosses zero from bottom, a buy signal is generated and vice versa. An increasing value of the trigger line would depict increasing momentum and topping or reversal when it starts approaching zero line. One should be prepared to exit his position on zero crossover. Also, divergences between price and trigger line may indicate a reversal of trend. Unlike other oscillators, TTO does not have an overbought or oversold zone as these zones tend to over-extend and may remain in overbought or oversold territory for a long period till the trend is reversed. TTO relies on the trend reversal which is indicated by crossover of the shorter term trend lines. What it means is if the shorter term trend line crosses the longer term trend, a reversal is indicated. In the absence of such a crossover, the trend is assumed to continue. This logic applies to all the three time frames included in the TTO. If a lower degree trend line falls below or moves above a higher degree trend line, either the trend is weakening and reversal is impending.
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High leveraged trades in Futures & Options can be tricky. Stop losses can be used for risk management but a few stop loss triggers can take away a substantial part of your capital. What is important is the entries are timed precisely and once an entry is made, ride on the position till exit. Equally important is the stock selection which can give the best trending position. Using Triple Trend Oscillator one can analyze the long term trend and take position in a shorter time frame with a precision entry using a minor trend, all this information available on the same indicator. An advanced option trader has highly sophisticated tools to trade in options where each of the factors affecting option pricing is analyzed. However, for a trader it boils down to managing the intrinsic and time value of an option. Hence it is important for an option trader to know the trend force and direction before trading in options. A strong trending move can negate the effect of theta (time value erosion), keeping the option trader in profit, even when close to expiry. Trading naked options, if timed correctly, can become a relatively risk free, simple and high profit strategy . An option trader using the Triple Trend Oscillator will be in a position to judge the tend quality. The position of trend oscillators close to zero indicates sideways moves which can kill an option trader. The best trend structures would be when the trends are placed away from the zero line indicating strong trending move in either direction. Again the position of the intermediate and minor trend would indicate the trend strength and the trigger line could be used to take position in the direction of the major trend. Notice in the following chart, how the thin black line zero crossover can be used to make precise entry in the direction of a larger trend. Even if you miss the first entry or are not confident, one can always use the second crossover for a good directional trade.
