Most of the people find it difficult to trade in forex market because of uncertainty in trend of market. A lot of questions come to their mind. Is it time to buy or sell, market will move up or down? Momentum indicator answer all of these questions and reduce chances of loss.
WHAT IS MOMENTUM INDICATOR?
Momentum indicator is used to measure the speed of change in price of an investments with in a time frame. It works by analyzing the past and current prices. Its waves moves above and below zero/hundred line and only shows the rate of change in price not direction of market trend. It must be used with other signal to read upward and downward movements of trends. Momentum indicators are more valuable when they are used with directional indicators for example (Kuskus starlight indicator mt4).
The formula for momentum is:
Where V= the latest price Vx=the closing price at some time, x is number of days ago end
Use of Momentum Indicator:
Momentum Indicator is one of most complicated indicator. It requires a lot of practice and experience. It is note nough to use independently to produce profits it becomes effective with the combination of other indicators like MA line, Heikenashi candle, Parabolic SAR, etc. This help to increase accuracy in trade and increases the probability of profit.
Momentum is higher when price cross the 100 line and it is profitable to buy. If it moves below 100 it means price is losing momentum.
It indicate the strength and weakness of price of investment or security. It has many advantages as well as disadvantages and rarely used indicator
Understand of signals:
Signal are shown with the help of momentum line move above or below 100 line or momentum line cross the line of moving averages. Distance of momentum and 100 line shoes the speed of change in price.
- If momentum indicator touches bottom and start to rise its buy signal.
- Sell when indicator touches top and start to decline.
- It is a weak uptrend if price move to new high up and indicator shows down trend.
Different types of momentum indicators:
1. Moving Average Convergence Divergence (MACD)
The Moving Average Convergence Divergence (MACD) is most used indicator.it use two moving averages.
It is calculated by 26 days-12 day.
2. Relative Strength Index (RSI)
It is one of the most popular indicator.It indicates change in price and speed of change in price. If RSI is in between 0-50 so it is time for soldout. If above 50 its time to buy.
3. Average Directional Index (ADX)
ADX is basically a comparison of two –DI and +DI. It is used to measure how strong a trend is but it does not provide any direction.
Momentum indicator is best if used with other indicators. Once the trader has analyzed the direction with the help of other indicator and use momentum indicator to see rate of change in price it become to interpret the life of a trend.