Are you looking for new indicators to use in your trading strategy? If applied correctly, the Center of Gravity (COG) indicator can become a valuable addition to your trading system. Easy to set up and understand, it can be used on its own or combined with other indicators. Let’s take a closer look at it.
How it works?
Developed by John Ehlers, an author of several trading manuals, COG is a leading indicator as it can provide an insight into the future of price action. According to the author himself and certain trading experts, COG has little to no lagging whatsoever. This indicator can help traders detect trend reversal points.
Indicator’s name comes from an interesting analogy. Ehlers saw a similarity between weighted moving averages of price and weighted indices of mass distribution for a physical object and how the center of gravity for it is defined. This way he developed the indicator that is based on the sum of prices over a certain period.
The indicator consists of two lines — the COG line (green) and the signal line or COG Trigger (red), which is essentially a simple moving average, used to generate buy and sell signals.
How to use in trading?
To interpret the indicator, you need to look at the crossings of the two lines as they show the potential turning points in price.
The signal to Buy occurs when the COG line crosses above the signal line. The signal to Sell can be determined when COG line crosses below the signal line.
You can successfully combine Center of Gravity with other indicators. It is important to remember that the indicator is most useful in a flat market and is ill-suited for a trending market, which means that you may use indicators like ADX to determine the current state and abstain from using COG if there is a strong trend. Bollinger Bands could also be used.
Note that there is no need to fir more than 2–3 indicators into one chart. It is important to understand the purpose of each indicator and trade wisely, instead of receiving duplicated signals from similar indicators.
How to set up?
When working with IQ Option, setting up the COG indicator is easy. Here’s what you need to do:
1. Click on the ‘Indicators’ button in the left-hand bottom corner of the screen and go to the ‘Momentum’ tab,
2. Choose ‘COG’ from the list of available indicators,
3. Without changing the default setting hit the ‘Apply’ button. Experienced traders can adjust the period to their liking as long as they understand the principles behind the indicator and the way it is calculated.
The indicator is ready to use!
Try Center of Gravity and see if you can make it a part of your trading strategy.Try COG now!