indicator As we have seen, the momentum indicator is a useful tool with a broad range of applications. The same tool can be used as a stock's momentum indicator and as a Forex momentum indicator. Momentum indicators in Forex records the speed of prices moving over certain time period.
The versatility of the indicator also means you can easily create momentum trading systems that work in the short-term as well as the long. As a sidenote, there are other momentum indicators out there, such as the MT4 Stochastic Momentum Index (SMI but you will have to download these as custom indicators if you are interested. Directional divergence between the price and momentum signals of a trend's developing weakness.
Price spikes that occur during weak momentum, are the last warning signals of the trend change. The good news is that MT4 does the calculations all for you in an instant and displays it for you in a supplementary chart below your main chart. You can use the momentum indicator to provide trading signals directly, but it is more commonly used as a confirmation tool. You would then seek to confirm the signal via the momentum indicator by looking for whether price/momentum divergence is either bullish or bearish. This strength behind the trend is often referred to as momentum, and there are a number of indicators that attempt to measure. Bearish divergence suggests an overbought market. Parameters section choose, first Indicator's Data from the Apply to dropdown menu as shown below: The image below shows the SMA added to the momentum indicator as a red line: The trading strategy now becomes to buy when the momentum line crosses above the SMA. Rather than taking someone else's word for it, you'll know for sure what works best for you. When a falling market is oversold, it may be about to bounce.