(FireflyTA) COG Average

COG Average

COG stands for Center of Gravity. This indicator is an average of multiple COGs based on different sets of timeframes. To get the single COGs this average is based on, use the Market Flow COG (Overlay) indicator.

COG Average is primarily a support and resistance indicator. It can also be used to identify trend and trend changes as well imminent breakouts.

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About "Center of Gravity"

The COG is an entity that is pulling price back to it frequently (this is why it is called Center of Gravity ) as the law of mean reversion dictates. Mean reversion can be loosely broken up into mean reversion on multiple timeframes, and the COGs are included for ULT (ultra low, 15-60m), L (low, 1h-4h), M (medium, 6h-12H) and H (higher, 1D+) timeframes. As this entity is a new development in TA there is still a lack of scientific evidence that it is reliable. However, if you look at the charts, you will notice that price action will respect this entity and circle around it on the appropriate timeframes most of the time.

The COG is similar to a Bollinger Band , it is using volatility as its main component. However, COGs are aggregated entities looking at more timeframes at the same time, so besides the Time X Volatility perspective that is provided by Bollinger Bands , this entity adds a third dimension by looking at multiple timeframes. The COG is the mean of all the BBs that are included in the calculation, which can be a large number. This makes a COG a meta-analytic entity that is more sensitive to market price action.

The COG helps you in identifying how far and for how long price has been overextended to one side beyond the means. In theory, the probabilities increase dramatically to see a mean reversion to the COG. Watching price interacting with the COG should make clear that the correlations are significant, however there might be differences based on the markets used. The COGs have primarily been tested with the BTCUSD market and for crypto in general.

A way to trade based on COGs is to look for weakness (if price is above the COG) or strength (if price is below the COG) in price action while it is approaching S&R. If signs of accumulation or distribution arise, and the distance to the COG is meaningful (as well as being maintained for a few candles), it can provide additional backing for your long/short scalping and swing trading ideas. I'd recommend to always use the COG in combination with your knowledge on price action.

By using all COGs at the same time for ULTF, LTF , MTF and HTF you can get a feeling for where price is in the context overall market flow.

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Deviation Bands

The Deviation Bands are fib-based deviations of the COG. When this module is enabled, the deviation bands are plotted around the COG. The deviations can be adjusted manually as well by changing the values in the indicator UI. The main purpose of these bands is to identify the structure of price movements in relation to the COG distance, i.e. analyzing how long price can maintain levels in an area >X or <Y away from the COG. They give also a certain tolerance to the fast reacting S&R zone.

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How to Use

• First of all, the COG Average and the zone around it based on the deviation bands can be traded like any other S&R. It makes sense to read into price action in addition to using this indicator. Don't rely on the indicator alone. If you see weakness in price action while price is getting rejected at the COG Average (below), it could be a possible shorting / profittaking spot.
  
• All COGs act as mean reversion entities, so in strong trends we can expect price to visit the COGs (and also the COG Average) once in a while. It might be worth looking for trade entries at the COG Average range after a strong correction for bounce.

You can find in-depth tutorials on how to use this indicator by browsing the links and resources in my signature.