Momentum Analysis & Momentum Oscillator MT5 Indicator
The momentum indicator uses math equations to calculate line of plotting. Momentum measures the velocity with which price changes. This is calculated as the difference between the prevailing price candle and the average price of a chosen number of price bars ago.
Momentum represents the rate of change of the currency’s price over the particular time periods. The faster that prices rises, the larger the increase in momentum. The faster that prices decline, the larger the decrease in momentum.
As the price movement begins to slowdown the momentum will also begin to slowdown and return to a median area.
Momentum
Forex Analysis & How to Generate Signals
This MT5 indicator is used to generate technical buy & sell signals. The three most common methods of generating signals used in Forex trading are:
Zero Center Line Crossovers Trade Signals:
- A buy signal gets generated when Momentum crosses above zero
- A sell signal gets generated when Momentum crosses below zero
Overbought/Oversold Levels:
Momentum is used as an overbought/oversold indicator, to identify potential overbought & oversold levels based on previous readings: the previous high or low of the momentum is used to figure out the overbought & oversold levels.
- Readings above the overbought level mean the currency pair is overbought & a price correction is pending
- While readings below the oversold level the currency is oversold and a price rally is pending.
Trendline Break Outs:
Trend-Lines can be drawn on the Momentum indicator connecting the peaks and troughs. Momentum begins to turn before price hence making it a leading indicator.
- Bullish reversal - Momentum readings breaking above a downwards trend line warns of a possible bullish reversal signal while
- Bearish reversal - momentum readings breaking below an upward trend line warns of a possible bearish reversal signal.
Analysis in FX Trading
