Momentum / Price Rate of Change
The Momentum indicator is identical to the Price Rate-Of-Change indicator. The Momentum indicator compares the current price with the price of an x number of periods ago. The speed / degree of change in this period is as graphically made visible, and therefore, the conduct of these changes over a long period of time.
Momentum Indicator Signals
The Momentum indicator is useful to confirm trends and trend reversal points by divergences. The Momentum indicator is not useful as an overbought / oversold indicator.
Momentum Indicator forex Trend Confirmation
An uptrend in the price chart is confirmed with a momentum value above 0, while a downtrend is confirmed with an indicator value below 0. Momentum Since the speed of change will indicate a gradual uptrend in the Momentum value is stable above 0 while moving at a rapid rise which then flattens the Momentum first peaks and then slowly sinks back toward 0. Trading in crosses the zero line is interesting especially when these crossings preceded by divergences.
Momentum Indicator Divergences
In ascending peaks in the rate but declining peaks in the Momentum (negative divergence) gives the Momentum a warning signal that the trend weakens. The speed of the increase is declining. The uptrend will soon come to an end. The same applies of course also vice versa when a positive divergence at the end of a down trend.
The graph below we see a declining momentum but still a rising rate. The strength of the uptrend is weakening and ends in a break and a lower bottom which coincides exactly with the intersection of positive to negative in the Momentum.
Calculation Momentum Forex Indicator
Momentum = (Last Price - Price (s) periods ago) / rate (n) periods ago
wherein (n) is the parameter value, eg 12 or 25.
A Momentum indicator value of -2.25 indicates that the rate is now 2.25 percent below the level of (n) periods ago is.
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2 comments:
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