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McClellan Oscillator

Published by Ali Muhammad


McClellan Oscillator is a technical indicator used to determine the sentiments in the stocks or indices like the New York stock exchange of the S&P Index. It determines either buyers are strong in the market or sellers are strong using a mathematical formula.

Breadth thrust is a term used in this indicator to indicate the change of sentiments in the market. Sentiments show the forces of sellers or buyers in the market. So, after getting sentiment analysis, we trade in a major trend direction.

McClellan Oscillator

How does the McClellan Oscillator work?

Sherman and Marian McClellan invented this indicator and then named it their surname. The best thing about the McClellan oscillator is that it collects data of all the stocks, determines the advances & declines in stocks, and then analyzes the sentiments. It is not based on the results of a single stock. That’s why many retail traders use it to determine the sentiments of a particular market.

This indicator oscillates around the zero line on the chart.

  • Above the zero line means that there is bullish sentiment in the market, and buyers are stronger than sellers. So, it would be best if you looked for a buying opportunity. The indicator will also shade the region below the oscillator with green color.
  • Below the zero line means there is bearish sentiment in the market, and sellers are stronger than buyers. So, it would be best if you only opted to sell a particular stock or index.
McClellan Oscillator working

The zero line is the horizontal reference line, and the oscillator line will continuously oscillate above or below the zero line.

Calculations of McClellan Oscillator

The McClellan oscillator uses the exponential moving averages of periods 19 and 39 of advances and declines in stocks.

  • Advances mean the number of stocks closing above the previous day’s closing price.
  • Declines mean the number of stocks closing below the previous day’s closing price.

McClellan Oscillator’s formula = (Exponential moving average (19 Period EMA) of advances – Declines) – (Exponential moving average (39 period EMA) of advances – declines)

This is a simple formula, and it helps a lot in making trading decisions.

How to trade using McClellan Oscillator

The best way to trade with this indicator is by adding other technical tools like support and resistance or supply-demand.

Let me make it clear to you that it is pretty risky to trade with this indicator alone. It only shows the sentiments either bulls are in force or bears are in power. It does not give a trading signal with a stop loss and take profit level. That’s why you can use it with other tools to make a perfect trading strategy.

Buy Opportunity

The oscillator will cross the zero line from negative to positive then look for buy opportunities. I mean, use Bullish candlestick patterns with moving averages to take a buy entry and hold the trade until the moving average breakout in the bearish direction.

Sell Opportunity

The oscillator will cross the zero line from positive to negative then look for sell opportunities, for example, in the strategy of moving averages and bearish candlestick patterns.

Open a sell trade on the formation of a bearish candlestick pattern by confirming the bearish sentiments on the McClellan oscillator.

Divergence in McClellan Oscillator

Another way of using this oscillator is to identify divergence between the oscillator and price action. Because divergence detects the trend reversal signal.

It can be used to find both bullish or bearish divergences.

divergence in McClellan Oscillator

The Bottom Line

The only drawback of this indicator is that you cannot depend only on this indicator to trade the market. Otherwise, it is the best way to analyze the market sentiments. So, you can open or close trade according to the sentiments.

Make your trading strategy and add this sentiments indicator. Your winning ratio of the strategy will improve to a greater extent. It is recommended to backtest the indicator before using it on the live account.

Do you want to get success in Trading?

Here's the Roadmap:

1. Learn supply and demand from the cheat sheet here
2. Get access the Supply & Demand Indicator here
3. Understand the fair value gap here
4. Use the set and forget strategy here
5. Follow the risk management plan here

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