Metatrader Indicators: Momentum
The change in the amount of security’s price in a given period of time is measured by the Momentum Technical Indicator.
The Momentum Indicator can be used in two ways:
It functions almost like Moving Average Convergence/Divergence (MACD) which fluctuates according to situations. When the indicator goes down and then pops up, it is the ideal time to buy and sell off when the indicator is at its zenith and falls down. If you want to keep a track of the rise and fall you will have to plan a temporary moving average.
If a significant rise or fall is noticed as compared to its previous trend then it is assumed that the current state will last for sometime. If the momentum indicator is at its peak and then falls down then it clearly indicates that the prices are going even higher. It is suggested to wait for the prices to confirm the current state of affairs. Do not trade until you are too sure of the prices.
Momentum Indicator can also be used as primary indicator. The method follows a general rule which states that when the market shoots up it is evident that there is a price rise and everyone believes that the prices will go even higher and as the market falls there will be speedy rejections ad people will want to make their way out. This happens very often, but it is just an overview of the situation.
As the market reaches its highest point, the Momentum Indicator will rise up and then fall straight, deviating from the movement of the price. In the same way when the market falls off, the Momentum Indicator falls right down and then makes its way up. The results of both the cases are divergent from the prices and the indicator.
Calculations
The ratio of current price to the price N years ago is the Momentum.
MOMENTUM = CLOSE (i)/CLOSE (i-N)*100
Where:
CLOSE(i) — is the current bar’s closing price.
CLOSE(i-N) — is the price of closing bar N years ago..
