The Momentum technical indicator measures the price has changed over a given time span. It attempts to measure the momentum behind price movements for the underlying currency pair over some period of time.
How to interpret:
There are basically 2 ways to use the Momentum indicator:
- As trend-following oscillator
Buy when Momentum bottoms and turns up. Sell when Momentum peaks and turns down. A short-term moving average applied to the indicator will help to determine its turning points. If Momentum reaches extremely high or low values, the odds are that the current trend will continue. If Momentum reaches extremely high values and then turns down, assume that prices will probably keep going higher. Enter the market only after prices confirm the signal generated by the indicator – in this case, wait for the prices to start falling and then sell.
- As a leading indicator
Often Momentum begins to turn before the price does. When Momentum is diverging from the price, it may be regarded as a leading indicator pointing at the potential top (when Momentum is falling while the prices are going up) or bottom (when Momentum is increasing while the prices are going down).
The advantage of the indicator is that it is ahead of a price.
Other articles in this section
- Williams’ Percent Range (%R)
- Relative Vigor Index (RVI)
- Force index
- Bulls/Bears Power
- Average True Range
- Monetary policy: impact on exchange rates
- CCI (Commodity Channel Index)
- Standard deviation
- Parabolic SAR
- RSI (Relative Strength Index)
- Bollinger bands
- Moving averages
- Trend indicators
- Introduction to technical indicators
- Support and resistance
- Technical analysis
- Central Banks: policy and effects
- Fundamental factors
- Fundamental analysis
- Fundamental vs technical analysis