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 how it works.
How does it work?
Developed by John Ehlers, the man behind numerous trading manuals, the COG is a leading indicator. Therefore, it can provide insights into the future of price action. According to Ehlers himself, 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 the latter is defined. He then 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 crossover between the two lines. This is how to pinpoint potential turning points.
The buy signal is received when the COG line crosses above the signal line. The sell signal is received when the COG line crosses below the signal line.
It is possible to combine the Center of Gravity with other indicators. However, it is important to remember that this indicator is most useful during the flat market and not so much during a strong trend. For a trending market other indicators, like ADX or Bollinger Bands, can be far more helpful.
Be careful not to overcrowd your chart with too many indicators. Usually 2 or 3 will be enough. It is important to understand the purpose of each indicator you use in trading. Also note that no indicator is capable of providing accurate signals 100% of the time. All indicators will provide false signals from time to time, the COG is not an exception.
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 bottom left corner of the screen and go to the ‘Momentum’ tab,
2. Choose ‘Center of Gravity’ 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.