The Momentum indicator measures how much the price of a market instrument has changed in a given period of time.
The indicator can be used as a trend-following oscillator in a similar way to MACD:
- It’s a buy signal when the indicator reaches a bottom and then turns upwards
- It’s a sell signal when the indicator reaches a top and then turns downwards
- The price will continue to rise if the indicator reaches a very high top and then falls
- The price will continue to fall if the indicator reaches a very low bottom and then rises
Wait for the price to confirm these signals before trading.
You can also use the Momentum indicator to predict price tops and bottoms:
- Prices rise rapidly as a top approaches – everyone expects the price to go up
- The Momentum indicator will peak and then turn well before the price starts to fall
- Prices fall swiftly when a bottom is imminent – everyone wants to get out
- The Momentum indicator will bottom and then turn in advance of the price
Momentum is the ratio of the current closing price to the closing price in an earlier interval.
MOMENTUM = CLOSE( J ) / CLOSE( J – N ) * 100
J is the current interval
N is the gap between the intervals that are being compared
You can find more information about technical indicators in the MetaTrader 4 User Guide. Select Help > Help Topics > Analytics > Technical Indicators.