Center of Gravity along with other trading indicators are usually used by traders to analyze the asset price and to get a trading signal based on the price movement. With the help of indicators, you can manipulate the price data by using a mathematical formula.
From thousands of indicators, you can use this simple COG indicator wisely, which will bring a new addition in your trading system.
In today’s blog, we will provide basic information on COG indicators, how it works, and how to set up this indicator in your trading platform.
Let’s Start!
John Ehlers is an inventor of Center of Gravity (COG) indicator. He developed this trading indicator in year of 2002. At the same time, he developed the indicator based on the sum of prices over a certain period.
The indicator is also known as COG indicator. With the help of this indicator, you can identify support and resistance level.
On the other hand, this graphical tool is a leading trading indicator to identify the potential turning points of future price action.
Moreover, the creator John Ehlers claims that it has a zero lag. It also has a smooth effect that helps to spot turning points clearly and without distractions.
The COG indicator consists of two lines. One is the COG line (GREEN) and the other one is the COG trigger (RED). Another name of COG trigger is the Signal Line.
As we mentioned before, these two lines work based on the sum of prices over a specified period. A simple moving average works as an indicator or a signal line, which generates buy and sell signals.
Remember that there are many versions of the COG indicator. One indicator is different from another. You can differ one indicator to another based on how they plot the indicator on the chart.
As per the rules, the standard settings for the indicator are the last 10 periods’ closing prices and a 3-period simple moving average of the COG. However, traders can adjust the settings.
Look at the crossing of two lines that we mentioned before to interpret the indicator. It will show you the potential turning points in price.
There is a formula that traders used to calculate the Center of Gravity indicator:
COG = SUM of closing prices Pn x (n+1) / Sum of closing prices Pn
Consider the signal as a buy, when the COG line crosses above the signal line. When the COG line crosses the signal line, the signal to sell determined for traders.
Moreover, you can easily combine this COG indicator with other indicators.
At the same time, it is important to remember that the indicator will work tremendously when the market is flat. Similarly, it is quite inappropriate to use for a trending market. Instead of this indicator, you can use indicators like ADX to determine the current state.
On the other hand, it is possible to use COG if there is a strong trend. Moreover, Bollinger Bands could also be used.
For all types of traders, do not use more than 2-3 indicators in one chart. It is really important to understand the purpose of each indicator. Trade wisely and try not to receive duplicate signals form the same indicators.
Setting up the COG indicator is comparatively easy than other trading indicators. Firstly, you have to choose a selected trading platform to apply this indicator. Here, we choose IQ Option’s trading platform as an example.
You just to follow some steps which we mentioned below:
The indicator is ready to use.
Try Center of Gravity and see if you can make it a part of your trading strategy.
This post was last modified on October 25, 2022 4:06 pm