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Thread: Indicator Momentum

  1. #1
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    Indicator Momentum

    Momentum is used as an indicator to know the trend of the market. If it is going up, it can be read as bullish sign and vice-versa. It is also usually called as ROC (Rate of Change).
    Momentum is calculated within specific time period (n). The formula is current closing price divided by last (n) closing price times by 100. Usually, the default n is 14. In meta trader 4, the reference value for indicator was 100. So if the momentum indicator going up from 100, the trend is going bullish. While, if it is going down from 100, the trend is going bearish.
    Momentum indicator has 2 functions. The first one was to know the trend of the market and the second one was to indicate whether the trend will keep going or not.



    I will show the first function first. As you can see from the picture, there are 2 boxes which I highlighted. Red box indicated bearish sign since it is going down from 100, while the yellow one showed bullish sign since it is going from 100.



    For the second function, we need the help of moving average indicator which is pointed by the blue arrow. This Moving average is needed to differentiate false signal or not. It is usually used with period of 20. So, it is calculate the average value of the closing prices within 20 days since I use closing prices for easier explanations.
    As we can see, I use yellow and red box to explain how it works. When you see the yellow box, the momentum indicator value was at its lowest. In this case, we won’t trade in this particular situation since the moving average also still showed bearish sign so it’s not a good time to buy low and sell high. So, never try to trade when indicator momentum reach its highest or lowest position
    For the red box, it explained the best position to buy low and sell high. The indicator momentum is not at its lowest value and the moving average showed a sign of bullish. This will be a perfect opportunity to buy and sell high later. As long as the Moving average indicator going bullish and momentum indicator is above 100, it’s safe to wait for higher price to take profit.
    I recommended using this momentum indicator since it is easy to use with the help of moving average. It’s a good choice for beginner trader who want to learn how to become a technical trader. It still need experiences and time to get a good position whether it is buy or sell even though the momentum and moving average indicator were in a synchronized trend since market is volatile.

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    Last edited by sekiryutei; 05-13-2015 at 03:57 PM.

  2. #21
    Trader musiliu's Avatar
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    The momentum indicator is a very useful indicator to help predict if a support or resistance level will likely be broken or if a reversal will likely occur. A rising momentum when the support and resistance level is being approached signals that the there is a very high tendency that the level will be broken, so a stop order will be the most appropriate to get entry if the level is broken

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  3. #22
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    i totally agree with you ,it really help alots to properly know of the key area we might be thinking will hold has hold,basically trading is based on trend and the market will always have it area where it will not be able to go forward on a particular trend and this is why momentum indicator can be used to confirm some market area.

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  4. #23
    Trader jamey's Avatar
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    Personally I am not using this index but really good indicators for all trending traders. I am using several other indicators to know about market trends, I can see that with this index it is very easy to calculate the market speed. So is it particularly effective to speed up trends or does this function have any other function?

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