What Is The McClellan Oscillator & How To Trade With It

McClellan Oscillator Explained

The McClellan Oscillator is an indicator of technical analysis from the family of oscillators, developed and implemented by Sherman and Marian McClellan in 1969. It is a breadth indicator derived from Net Advances, which is the number of advancing issues less the number of declining issues. Subtracting the 39-day exponential moving average of Net Advances from the 19-day exponential moving average of Net Advances forms the oscillator. The indicator can be used for forex trading and other markets such as stocks, indices, commodities and precious metals. The McClellan Oscillator is a momentum indicator that works similar to the MACD indicator. McClellan Oscillator signals can be generated with breadth thrusts, centerline crossovers and divergences.

What is the McClellan Oscillator indicator?

The McClellan Oscillator indicator is designed to analyze market ranges calculated by bullish and bearish candles for a certain period of a time on a particular trading instrument.

The McClellan oscillator is calculated using the formula:

McO (t) = EMA (fast, t) (Advances (i) – Declines (i)) – EMA (slow, t) (Advances (i) – Declines (i))

The McClellan Oscillator is considered from the difference of the moving averages of the larger and smaller periods, for example, 39 and 19.

McClellan Oscillator on chart
McClellan Oscillator on chart

Adding the McClellan Oscillator indicator to Metatrader

The McClellan Oscillator is not included in the standard trading tools of the trading platforms MT4 and MT5. To add it, you need to copy the indicator files to the appropriate directory on your computer.

If you have MetaTrader 4. Open C: \ Program Files. Next, find the file folder of the trading terminal there and open it. Go to the directory … \ MQL4 \ Indicators and copy the McClellan Oscillator file (s) there.

If you have a MetaTrader 5. Open C: \ Program Files . Next, find the file folder of the trading terminal there and open it. Go to the directory … \ MQL5 \ Indicators \ Examples and copy the McClellan Oscillator file (s) there.

After that, launch the trading terminal. Click Insert / Indicators / Custom . A list of indicators opens. Select the McClellan Oscillator to attach it to your charts.

McClellan Oscillator indicator parameters

In the parameters you can only change the frequency of the moving averages (fast and slow). You can experiment with the settings to see which are most suitable for your trading strategy or you can use the default values.

McClellan Oscillator parameters
McClellan Oscillator parameters

How to use the McClellan Oscillator indicator?

Indicators based on data on the number of rising and falling assets are called indicators of the “width” of the market. They identify the number of assets, the dynamics of which coincide with the current trend of the market as a whole. A steady upward trend in the market is characterized by a large number of moderately rising asset prices. The growth may continue, giving the impression of complete prosperity, but if it is provided by a large increase in the price of only a small number of assets, then the market is weakening. This type of divergence often signals the end of the bull market. The same can be said about the final phase of the bear market, when the market index continues to fall, while the number of cheaper shares decreases.

McClellan Oscillator divergence
McClellan Oscillator divergence

A buy signal occurs if the McClellan Oscillator falls into the oversold zone (usually between -70 and -100), and then turns up. A sell signal occurs when the oscillator rises to the overbought zone (between +70 and +100) and then turns down.

McClellan Oscillator - oversold & overbought
McClellan Oscillator – oversold & overbought

If the oscillator goes beyond these areas (i.e., rises above +100 or falls below -100), this indicates that the market is in a state of extreme overbought or oversold. Such extreme values ​​usually indicate a continuation of the current trend.

For example, if the oscillator drops to -90 and turns up, this could be a buy signal. However, if the oscillator drops below -100, then the market may continue to fall. In this case, we could wait until several successively increasing troughs form on the oscillator chart or until the market regains strength.

McClellan Oscillator trading strategies

McClellan Oscillator Strategies

There are various strategies based on the McClellan Oscillator indicator.

For example, use zero level as a single signal mark. In this case, you could:

  • If the oscillator crosses the zero mark from bottom to top, open a long position (close a short one)
  • Stop loss can be placed slightly below the local low.
McClellan Oscillator buy trade setup
McClellan Oscillator buy trade setup
  • If the oscillator crosses the zero mark from above down, open a short position (close a long one)
  • Stop loss can be placed slightly above the local high.
McClellan Oscillator sell trade setup
McClellan Oscillator sell trade setup

McClellan Oscillator conclusion

The McClellan Oscillator can be a very useful tool for conducting technical analysis, specifically it can help in forecasting the market trend.

The McClellan Oscillator is just one indicator amongst thousands. I would not build a trading system alone, but rather combine with other technical indicators such as moving averages, Parabolic SAR, Stochastic Oscillator, RSI, ADX and price action analysis.

I would prefer to use the majority of technical indicators such as the McClellan Oscillator on the 1-hour charts and above. I tend to find that these charts contain less market noise than the lower time frames and thus give more reliable signals for my forex trading strategies. This also means that I spend less time staring at charts and can also set alert notifications to let me know when price has reached certain levels or a particular indicator value has been reached.

Of course, every trading system will generate false signals which is why money management is so important. I would personally be implementing sensible money management and only take traders that give me a favorable risk to reward ratio, ideally of at least 1:3. This means that one losing trade does not wipe out consecutive winners.

The methods of implementing the McClellan Oscillator into a trading strategy that are outlined within this article are just ideas. I would always ensure that I have good money management, trading discipline and a trading plan when using any forex strategy.

Furthermore, I would combine multiple technical analysis, fundamental analysis, price action analysis and sentiment analysis to filter all entries. You should trade forex in a way that suits your own individual style, needs and goals.

If you would like to practice trading with the McClellan Oscillator, you can open an account with a forex broker and download a trading platform. If you are looking for a forex broker, you may wish to view my best forex brokers for some inspiration.

Happy trading!