The Momentum indicator shows the pace of the price fluctuation. It also shows the direction of the trend. When traders want to measure the rate of change of an asset, this is one of the indicators that they use.
It’s very popular when it comes to determining the pace. It compares current and past values and helps traders to make good decisions about the best point at which they can sell or buy. It is used along with other indicators.
The points where the market can or is likely to reverse are identified by using this indicator. These points are identified when price movement diverges from momentum. Trend lines and moving averages can be used to confirm whatever this indicator shows you, so never enter a trade based solely on the information you get with it.
Calculating Momentum indicator
In these calculations, the following symbols are used:
- MOMENTUM = the momentum technical indicator
- CLOSE(i) = is the closing price of the current bar;
- CLOSE(i-N) = is the closing bar price N periods ago
The Momentum indicator is a ratio, which is used to compare today’s price with the price a few (N) periods ago.
MOMENTUM = CLOSE(i)/CLOSE(i-N)*100