Momentum Indicator: Forex Oscillator

Momentum Indicator Definition

Momentum Oscillator is an indicator that shows trend direction and measures how quickly the price is changing by comparing current and past prices.

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How to Use Momentum Indicator

The momentum indicator is represented by a line, which oscillates around 100. Being an oscillator, momentum should be used within price trend analysis.

Crossing the x-axis:

  • It is believed that if the indicator climbs above 100 during an uptrend, it is a bullish signal;
  • Otherwise if the indicator falls below 100 during a downtrend, a bearish signal appears.

Falling out of its normal range:

  • Extreme points mean that the price has posted its strongest gain or loss for a particular number of moving periods, supporting trend strength;
  • At the same time if the price movement was too rapid, they may indicate possible overbought and oversold areas.

Divergence patterns:

  • If the price hits a new high, but the indicator does not, that could mean that investor sentiment is actually lower;
  • And on the contrary if the price falls to a new low, but the indicator does not support the drop, it is a signal that the trend may end soon.
Momentum Indicator

Momentum Indicator

Momentum Indicator Formula (Calculation)

The value of the Momentum indicator is calculated as the ratio of the current price to the price a few bars ago.

Momentum = (Current close price / Lagged close price) x 100

How to use Momentum in trading platform

Use indicators after downloading one of the trading platforms, offered by IFC Markets.