What the momentum indicator is and how to use forex momentum indicator. Momentum Indicator with “n” set to 10.
The “n” is determined by you. The first calculation just takes the difference between the two closing prices and plots it. The second version of the indicator shows the price difference between the current price and the price n periods ago as a percentage. When the momentum indicator is above 100 or 0, the price is above the price “n” periods ago, and when the momentum indicator is below 100 the price is below the price “n” periods ago. How the far the indicator is above or below 100 indicates how fast the price is moving. A reading of 101 shows the price is moving quicker to the upside than a reading of 100.
A reading of 98 shows the price is moving with more force to the downside than a reading of 99. If the indicator shows a zero line, a reading of 0. 35 means there is more upside momentum than a reading of 0. If the price crosses above the 100 line it indicates the price is starting to move higher since the price has moved above the price “n” periods ago. A drop below the 100 line shows the price is dropping since it has moved below the price “n” periods ago.
The 100 or zero line cross is prone to “whipsaws”, meaning the price could move above the line, but then right back below it. Traders may wish to filter signals based on the current trend. 100 and then rallies back above zero. Crossover – Add a moving average to the indicator. Buy when the Momentum indicator crosses above the moving average from below, and sell when the Momentum indicator crosses below the moving average from above. This too has its problems, mainly the whipsaw problem mentioned above.