The Momentum Technical Indicator measures the amount that a security’s price has changed over a given time span. There are basically two ways to use the Momentum indicator:
You can use the Momentum indicator as a trend-following oscillator similar to the Moving Average Convergence/Divergence (MACD). Buy when the indicator bottoms and turns up and sell when the indicator peaks and turns down. You may want to plot a short-term moving average of the indicator to determine when it is bottoming or peaking.
If the Momentum indicator reaches extremely high or low values (relative to its historical values), you should assume a continuation of the current trend. For example, if the Momentum indicator reaches extremely high values and then turns down, you should assume prices will probably go still higher. In either case, only trade after prices confirm the signal generated by the indicator (e.g., if prices peak and turn down, wait for prices to begin to fall before selling).
You can also use the Momentum indicator as a leading indicator. This method assumes that market tops are typically identified by a rapid price increase (when everyone expects prices to go higher) and that market bottoms typically end with rapid price declines (when everyone wants to get out). This is often the case, but it is also a broad generalization.
As a market peaks, the Momentum indicator will climb sharply and then fall off — diverging from the continued upward or sideways movement of the price. Similarly, at a market bottom, Momentum will drop sharply and then begin to climb well ahead of prices. Both of these situations result in divergences between the indicator and prices.
Momentum is calculated as a ratio of today’s price to the price several (N) periods ago.
MOMENTUM = CLOSE(i)/CLOSE(i-N)*100
where:
CLOSE(i) — is the closing price of the current bar;
CLOSE(i-N) — is the closing bar price N periods ago.
This version:
All the above written is a part of the momentum that is included as a standard indicator in metatrader (metatrader 4 and metatrader 5). But the momentum as is is rather lacking some options that we would need to make more reliable decisions when using it. This version is an attempt to add some things that could help all of us.
The indicator can use filtered price for calculation now – that way, if the slope of the momentum is used for decisions the number of signals (and fake signals) is lessened significantly. The lag added is acceptable (that can easily be checked by comparing this version to the built in momentum using same period)
For the above purpose the indicator can use one of the 4 averages types :
simple moving average (SMA)
exponential moving average (EMA)
smoothed moving average (SMMA)
linear weighted moving average (LWMA)
Also, the indicator includes 3 coloring modes :
color changes on slope change
color changes on 100 % level cross
and (since built in momentum lacks significant levels other than 100%) dynamic levels are added which are adding the usual up and down levels that can be used either as overbought/oversold significant levels or as start/end of a trend
levels are displayed only if the color change on levels cross is chosen (default setting) in order to keep the display of the momentum as clear as it can be and to show only data that is required by parameters settings
PS: a “big picture” comparison of a “raw” momentum, and this version (for the sake of comparing the lag, that as it is obvious, is almost not existing)
MA on Momentum - indicator MetaTrader 5 The idea of the indicator Two lines - simple 'Momentum' indicator and 'Momentum' indicator smoothed with 'Moving Average'. Rice. 1. MA…
