Momentum & oscillatorsDerivative Oscillator
Constance Brown's double-smoothed RSI plotted as a histogram with a signal line — MACD-style momentum built on RSI.
Works in most conditionsEngine-computed on a fixed sample series
What it is
The Derivative Oscillator, created by Constance Brown, is best thought of as a MACD built on top of RSI instead of on raw price. Ordinary RSI measures the momentum of price; the Derivative Oscillator smooths that RSI twice and then measures the momentum of the smoothed RSI, so it reads the momentum of momentum. The result is plotted as a histogram swinging above and below a zero line, with the bars showing whether that deeper momentum is building or fading. For a beginner, the point is that it tries to give you the early-warning and divergence power of RSI but in a cleaner, less jittery form that is easier to read as a trend tool. It answers the question, is the underlying momentum of this market accelerating or decelerating, and in which direction? Because it sits one layer removed from price, its peaks, troughs, and divergences tend to be unusually smooth.
How it is calculated
The construction proceeds in clear stages. First, compute a standard 14-period RSI of price. Second, smooth that RSI with a 5-period exponential moving average. Third, smooth the result again with a 3-period exponential moving average, producing what is effectively a double-smoothed RSI line. Fourth, take a 9-period simple moving average of that double-smoothed line to act as a signal line. The Derivative Oscillator itself is the double-smoothed RSI minus its 9-period signal average, and that difference is drawn as the histogram. If you recognise the pattern of a fast line, a signal line, and a histogram of their difference, that is exactly the MACD recipe — only here the input is RSI rather than price, which is why it is described as a MACD of RSI.
Reading it, step by step
The histogram is the heart of the tool. Bars above the zero line mean the smoothed RSI is above its own signal average, so bullish momentum is in control; bars below zero mean bearish momentum dominates. The basic trigger is a swing of the histogram back through zero, which marks the moment the momentum of momentum changes hands. Rising bars above zero show strengthening upside thrust, while shrinking bars, even while still positive, warn that the push is losing steam before the zero cross arrives. Because the oscillator is doubly smoothed, its high and low pivots are clean, which makes divergence — price making a new high while the histogram makes a lower high — an especially readable warning of exhaustion. Read it as a confirmation and timing layer on top of the trend you have already identified from structure or a longer average.
Best timeframes and settings
The canonical settings are a 14-period RSI, a 5-then-3 period double EMA smoothing, and a 9-period signal average, and most traders leave these alone because Brown tuned them deliberately. It is a flexible tool across timeframes: swing traders apply it to daily charts, while intraday traders use it on hourly or 15-minute bars, and the smoothing keeps it usable even on faster charts where a raw RSI would be too noisy. Shortening the RSI length or the smoothing EMAs makes it more responsive but reintroduces the jitter the design was meant to remove, while lengthening them produces an even smoother line that turns later. The default configuration strikes a balance that favours clean signals over speed. Because two rounds of smoothing already add lag, resist the temptation to add still more; if anything, this is a tool you speed up cautiously rather than slow down.
When and where to use it
The Derivative Oscillator is at its best confirming momentum within an established trend and flagging when that momentum is quietly diverging from price. It works across equities, futures, and FX, and its smoothing makes it particularly welcome on choppier intraday data where raw oscillators whip around. In a strong trend, use the histogram to stay with the move and to time pullback entries as bars turn back up through zero. In a flat, directionless market it offers little edge, because an oscillator of an oscillator can drift near zero while price goes nowhere, producing meaningless small crosses. Avoid treating it as a standalone signal generator; it is a layer that adds conviction to a setup you have already framed. It rewards patience and a clear trend context far more than mechanical zero-line trading.
Strategies that use it
The first strategy is trend-aligned zero-line trading: define the larger trend with a 50 or 200-period moving average, then take histogram crosses above zero as long entries only while price is above that average, and mirror for shorts. The second is a divergence reversal: when price prints a higher high but the Derivative Oscillator histogram prints a lower high, prepare for a pullback or reversal, and enter once the histogram confirms by crossing back through zero, with a stop beyond the recent price extreme. The third is a pullback-timing entry: inside a confirmed uptrend, wait for the histogram to dip below zero on a retracement and buy the moment it curls and crosses back up, targeting the prior swing high. In all three, the double smoothing means you are trading a confirmed change rather than a first flicker, so combine it with a structural stop rather than a tight one.
Combining it with other indicators
Because it is itself a momentum reader, the Derivative Oscillator pairs best with trend and location tools rather than with other oscillators that would just echo it. A longer moving average or the ADX supplies the trend context that tells you whether to trust a zero cross or ignore it as range noise. Support and resistance or pivot levels give the oscillator's divergence signals a place to actually turn, sharpening entries. Volume can corroborate a momentum shift, since a zero-line cross backed by expanding volume is more convincing. Some traders run it alongside the raw RSI so they can see both the surface momentum and the deeper, smoothed momentum at once, using agreement between the two as a stronger filter than either alone.
Where it fails
The defining weakness is lag: two rounds of smoothing mean the tool confirms rather than leads, and it will turn late at sharp V-shaped reversals where price snaps back before the smoothed line can react. In quiet, consolidating markets it can hover around zero and generate a string of tiny, whipsaw crosses that cost money if traded mechanically. Beginners sometimes treat its overbought or oversold appearance like RSI, but it is unbounded relative to fixed levels and is really a momentum-of-momentum histogram, not a 0-to-100 gauge. The classic mistake is using it alone in a range; the classic fix is to gate it behind a trend filter and only act on crosses that align with the larger move. Because it smooths so heavily, it also needs enough bars of history to settle, so it is unreliable on the first candles after a new listing or a data gap.
A worked example
Imagine a stock in a clear uptrend above its rising 50-day average. It pulls back for several days and the Derivative Oscillator histogram, which had been well above zero, sinks below the zero line as the double-smoothed RSI dips beneath its signal average. A patient trader watches for the pullback to exhaust, and on the day the histogram stops falling, curls up, and crosses back above zero, they enter long — the deeper momentum has turned up again in the direction of the established trend. The stop goes just below the pullback's low, and the target is the prior swing high. A week later price makes a marginal new high, but the histogram peaks lower than it did on the previous rally; that bearish divergence warns the trader to tighten stops and take profits, and sure enough the next zero-line cross downward marks the start of a deeper correction.