Momentum indicator in forex trading

Momentum indicators in Forex records the speed of prices moving over certain time period. At the same time Momentum indicators track strength and weakness of a trend as it progresses over a given period of time: the highest momentum is always registered at the beginning of a trend, the lowest - at its end point.
Momentum Indicators in Forex.
Accumulative Swing Index (ASI) Advance Decline Ratio (ADR) Aroon Indicator Aroon Oscillator Chande Momentum Oscillator Commodity Channel Index (CCI) Intraday Momentum Index Gravity Linear Regression Slope MA Angle Mass Index Momentum Price Oscillator Random Walk Index Range Indicator Rate of Change (ROC) Relative Momentum Index Relative Strength Index (RSI) Smoothed Indexed Rate of Change (SIROC) Stochastic Stochastic RSI Stochastic Momentum Index Swing Index Ultimate Oscillator Williams %R Williams' Accumulation-Distribution.
How to trade with Momentum Indicators.
With Momentum indicators Forex traders look for controversy between chart prices and Indicator suggestions:
A. directional divergence between the price and momentum signals of a trend's developing weakness.
B. price spikes that occur during weak momentum, are the last warning signals of the trend change.
C. also trend change should be expected during sideways moving prices and controversially strong momentum.
Momentum indicators, such as RSI and Stochastic, are favorite indicators for non-trending markets. Momentum indicators ideally gauge whether the market is overbought or oversold during its non-trending state, and highlight potential reversal points before those actually occur.
trader.
The two best momentum indicators are seems to be Stochastic and RSI. I'd like to learn more about RSI trading please. How to combine those indicators. Also why momentum trading is so popular, what's its importance exactly in. Thank you.
FxIndicators.
Momentum trading in Forex or any other market is all about being able to get in and out of a trade at the right moment - at the moment where market is gaining initial strength/momentum and runs first few miles with great confidence and without looking back. When momentum is decelerating or lost, an uncertainty sets among investors as they try to re-evaluate their chances for further profitable price chasing, and the big nice rallies or sell-offs are slowing down yielding no more profit potentials till the next momentum.
Momentum indicators help to catch that "Here and Now" time to place orders and lock in profits.
It is true that two most popular indicators in Forex remain to be Stochastic and RSI.
Although just one of them will be enough to identify periods of forming momentum in Forex market, you may combine two indicators in order to refer to either one or both of them when expectations for new trading opportunities are high.
The best explanation on combining two momentum indicators could only be possible with a help of a specific Forex trading strategy, so we've found an example for you online from a very reputable site.
and hope you enjoy it!
Whats the exclusive use of momentum indicator, if all i need to see while investing is the trend and the trend indicator do that job very well. Explain the cons of investing without momentum indicators.
FxIndicators.
That's quite easy to explain.
Trend indicators tell which of the trends (up or down) is in place. Trend indicators also tell when the trend changes or is about to change. But, there is one thing trend indicators cannot show - and this is the very moment at which all "powers of a trend" have gathered the momentum to produce a move.
In simple words, it's a situation when, for example, you know that a trend is up, but you don't know whether you should Buy it now or wait till you get a better price. That's where momentum indicators come in handy. Momentum indicators show the very best moment when you can Buy it having the highest odds that the market will move into your favor immediately without looking back.
Also you can rely on momentum indicators to suggest when the "powers of a trend" (or simply the momentum) is weakening. Using this information you can take decisions on either taking quick profits and be out of the trade or review and re-adjust your trading stops.
Without momentum indicators it would be difficult to time trades (specifically entries) precisely, besides there is a chance to enter a trade when the market has made quite a progress and as a result used all its power (lost momentum) and is preparing to retrace to regain it, leaving late newcomers at the tip of a reversal.
how do you know whether a market is trending or not.
FxIndicators.
When the market keeps making higher highs and higher lows - it is trending upwards and the trend is intact.
When the market keeps making lower highs and lower lows - it is trending downwards and the trend is intact.
Any changes in this sequence invites ranging market reaction.
This subject is further addressed in the comments at:
In addition, traders often use Moving averages.
Classic example, Alligator indicator: Alligator. mq4.
When there is a prefect lineup: blue, red, green - there is a trend.
When lines mix up, there is no trend.
The first uptrend is marked with green circle - shows the beginning of a trend, when all 3 moving averages are lined up.
The red circle is the end of the downtrend - when the green moving average crosses over the red moving average, breaking the prefect sequence.
what is the 3 Moving average line? how many days?
FxIndicators.
3 Moving average line consists of 3 MAs with next settings: 13, 8 and 5.
what are the best moving average periods for trading 1 min or 5 mins chart?
FxIndicators.
If you want to see trends on 1 & 5 min, use 20 SMA. Also price would respect 200 EMA.
Smaller moving averages would only "dance" back and forth with price bars without providing any considerable use.
This is the advice I ever get for Forex so far.
LOL at above comment.
I just came accross this site today and was amazed at what I saw. Hmm. Thank you so much for your concern.
What is the best MAs combination for 15m time frame or 30mns?
FxIndicators.
Depends on your goals. Don't be surprised if someone tells you that there is no ideal Moving average or set of averages. Every one of them to some point hits the perfect trade one time and misses on the other.
Check out this page about Moving averages, in particular the paragraph about most common moving averages. You can certainly use those on 15 min or 30 min time frame.
I need some enlightenment on the use of support and resistance points when trading. Please also clarify me on how to actually place your stop loss. For example you may place it at 10 pips away from your position in line with your money management strategy but some times the price will swing to 12 pips thereby stopping you out only for it to swing back up and make much profit. How do you strike a balance between your money management limit and the possibility of the price crossing your limit and swinging back in the opposite direction?
Could you please send/write to me indicator:
Stochastic Momentum Indicator (Index).
I have been able to find its formula for metastock.
100 * ( Mov( Mov(C - (.5 * ( HHV(H,13) + LLV(L,13))),25,E),2,E)/
(.5*Mov(Mov( HHV(H,13) - LLV(L,13),25,E),2,E)))
but i need it for.
dot net sochastic momentum calculatio​n.
Any help appreciated. Thank you.
would you please telling me about which momentum indicators that has highest accuracy in time frame 5 or 15, and also the best parameter setting of it - absolutelly thanks before.

How to Trade with the Momentum Indicator.
What the momentum indicator is and how to use it.
The Momentum indicator is a speed of movement indicator designed to identify the speed (or strength) of price movement. The momentum indicator compares the most recent closing price to a previous closing price (can be the closing price of any time frame). The momentum indicator is displayed as a single line, on its own chart, separate from the price bars, and is the bottom section in the example chart.
Calculation of the Momentum Indicator.
Description: There are several variations of the momentum indicator, but whichever version is used, the momentum (M) is a comparison between the current closing price (CP) a closing price "n" periods ago (CPn). The "n" is determined by you. In the attached chart, Momentum is set to "10," so the indicator is comparing the current price to the price 10 minutes ago (because it is a 1-minute chart).
The first calculation just takes the difference between the two closing prices and plots it. The second version of the indicator shows the price difference between the current price and the price n periods ago as a percentage.
Momentum Indicator Trading Use.
The momentum indicator identifies when the price is moving upwards or downwards, and by how much. When the momentum indicator is above 100 or 0, the price is above the price "n" periods ago, and when the momentum indicator is below 100 the price is below the price "n" periods ago.
How the far the indicator is above or below 100 indicates how fast the price is moving. A reading of 101 shows the price is moving quicker to the upside than a reading of 100.5. A reading of 98 shows the price is moving with more force to the downside than a reading of 99. If the indicator shows a zero line, a reading of 0.35 means there is more upside momentum than a reading of 0.15.
The momentum indicator can be used to provide trade signals, as follows, but it typically is better used to help confirm trades based on price action (breakouts or pullbacks with in a trend, as examples).
100 Line Cross - When the price crosses above or below the 100 line (or zero line if the indicator is based on the first calculation) it can represent a buy or sell signal respectively. If the price crosses above the 100 line it indicates the price is starting to move higher since the price has moved above the price "n" periods ago. A drop below the 100 line shows the price is dropping since it has moved below the price "n" periods ago.
The 100 or zero line cross is prone to "whipsaws", meaning the price could move above the line, but then right back below it. Traders may wish to filter signals based on the current trend. For example, if a stock is trending higher, only buy when the indicator falls below zero/100 and then rallies back above zero. In this case, the indicator can also be used as a sell signal when it dips below 100/0.
Crossover - Add a moving average to the indicator. Buy when the Momentum indicator crosses above the moving average from below, and sell when the Momentum indicator crosses below the moving average from above.
This too has its problems, mainly the whipsaw problem mentioned above. This can be somewhat alleviated by once again only taking trade signals in the trending direction, as described above. In this case, if the trend is down, only take short trades after the indicator has moved above the moving average and then drops below. Exit the short trade when the indicator moves above the moving average.
Since there are now two indicators being used, you will need to test out various moving average lengths and momentum indicator setting to find a combination that works for your trading style.
Divergence - If the price is moving lower, but the lows on the momentum indicator are moving higher, this is a "bullish divergence." It shows that while the price is dropping, the momentum behind the selling is slowing. If you get a buy signal, this bullish divergence can help confirm it. If the price is moving higher, but the highs on the momentum indicator are moving lower, this is a "bearish divergence." It shows that while price is rising, the momentum behind the buying is slowing. If you get a sell signal, this bearish divergence can help confirm it.
Divergence should never be used on its own, as it is not reliable. It should only be used to help confirm trade signals produced by other strategies. If using the indicator for divergence, be aware of the quirks of the indicator. For example, if the price rises strongly but then moves sideways, the momentum indicator will rise and then start dropping. This is not a bad sign. The indicator is just showing, in a different way, what is visible on the price chart: the price had a lot of momentum, and now it has very little (dropping momentum), but that doesn't mean the price is going to drop (see Don't Trade MACD Divergence Until You Read This for more on divergence).
Final Word on Momentum Indicator.
The momentum indicator isn't going to give a trader much information over and above what can be seen just by looking at the price chart itself. If the price is moving aggressively higher, this will be visible on the price chart and on the momentum indicator. The momentum indicator can be useful for spotting subtle shifts in the force of buying or selling though, mainly through the use of divergence (but be aware of the quirks). The momentum indicator is best used in conjunction with a price action trading strategy, providing confirmation as opposed to using the indicator to generate trade signals on its own.

Momentum Strategy – How to Use the Momentum Indicator in Forex Trading.
This is the second article in our Momentum series. If you haven’t already we suggest that you check out the first article about the Momentum Indicator. In that article, we covered the background of the Momentum indicator, how it is calculated, and how it looks on a chart. The Momentum indicator attempts to measure the momentum behind price movements for the underlying currency pair over a period of time. Traders use the index to determine overbought and oversold conditions and the strength of prevailing trends.
The Momentum indicator is classified as an “oscillator” since the resulting curve fluctuates values about a “100” centerline, which may or may not be drawn on the indicator chart. Overbought and oversold conditions are imminent when the curve reaches maximum or minimum values. The addition of a Smoothed Moving Average with the indicator improves interpretation of imminent trend changes.
How to Read a Momentum Chart.
The Momentum indicator with a period setting of “9” is presented on the bottom portion of the above “15 Minute” chart for the “EUR/USD” currency pair. In the example above, the “Blue” line is the Momentum indicator, while the “Red” line, added as an additional option on the “Metatrader 4” platform, represents a smoothed moving average for fourteen periods. Momentum values at upper and lower extremes are worthy of attention. The SMA confirms when shifts in momentum occur.
The key points of reference are highpoints and lowpoints. The “Momentum Rollercoaster” tends to denote strong trends at its extremes, but when values hover about the centerline area, prices are said to be ranging. The SMA visually conveys the slope of the Momentum indicator. Trading signals result when slope changes in the SMA occur. In the above chart, two oversold and one overbought conditions are evident by virtue of the Momentum indicator and SMA crossovers.
As with any technical indicator, a Momentum chart will never be 100% correct. False signals can occur, but the positive signals are consistent enough to give a forex trader an “edge”. Skill in interpreting and understanding Momentum signals must be developed over time, and complementing the Momentum tool with a Smoothed Moving Average is always recommended for further confirmation of potential trend changes.
In the next article on the Momentum indicator, we will put all of this information together to illustrate a simple trading system using this Momentum oscillator.
Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.

Forex Momentum Strategies.
Popular Momentum or the speed indicator enables to measure the price fluctuations of financial asset for a certain period. Any strong deviation which is easily distinguished by using this tool can be considered as a critical market condition which can be used for successful position opening. It serves as a basis for the Momentum Forex strategy.
Mathematics of the indicator.
The indicator is traditionally located at an additional window and is not a mere oscillator. It should be noted that there are two approaches as to the calculation of a momentum.
A momentum is literally interpreted as «the movement size». The movement is evaluated in absolute measures, so that points, cents, dollars are used for the analysis of financial asset price dynamics. Therefore, Forex Momentum indicator has been originally calculated as a difference between the current market price and the price which was a number of periods back. When using such method of calculation, the central line will be located at zero level. Such Momentum has been built in all exchange terminals.
The indicator which is used in the majority of popular trading terminals, including MetaTrader4(5), mathematically represents the ratio of the present price to the price which has been fixed a number of periods back. Following this calculation we will receive the distorted Momentum - Rate of Change (RoC), or «change in the price speed». It shows a ratio of the current price to the price a number of periods back. Therefore, the central line of this oscillator is always located at the level of 100.
Such difference in the methods of calculation is not crucial for Momentum trading Forex as the marking under both formulas is almost identical. Usually smoothing, averaging and other transformations are not applied to results. Both methods most often use Close prices as the most precise indicators for the future movement forecast.
The larger the indicator parameter, the more slowly its line reacts to the changes in price. The concepts of zones of overbought/oversold do not exist for Forex Momentum trading. However, more precise assessment requires analysis of its behavior in relation to central level (0 or 100).
Momentum Forex Strategy.
Such simple tactics is justified only on long intervals, for example, consisting of 100 and more candles. Emergence of extreme values says that the current tendency (growth or fall) will proceed. Nevertheless, such Momentum Forex strategy recommends opening transactions only after confirmation from additional indicators.
The second tactics Forex Momentum trading is based on signals of the indicator’s line crossing the line of level (0 or 100). Such technique can already be effective on shorter periods.
Sometimes for more exact determination of the pivotal moment it is recommended to construct fast moving average with the periods of no more than 5-10 candles on the Momentum line. Then a signal on purchase is a breakthrough of the line of own moving average from below up, and a signal for sale from top to down.
Work of Momentum as the advancing oscillator is based on assumption that a swing will be followed by a stage of prompt movement of the prices, and it is possible to catch a profit so far a great number of new participants join in a new trend. When the market approaches a swing point, then there often take place divergence situations with the price chart on the Momentum line which is rather strong trading signal.
The Momentum indicator is successfully used as the oscillator in case of breakthrough of the channel. In other words, if there is a the high (positive) Momentum during a flet, the current price is higher than the previous one and the ascending trend is more probable, than it is good time to buy. In contrast, if there is a low (negative) Momentum and the price falls (a bear trend), the best option is to sell.
A sharp reaction of the indicator at the moments of speculative price bounces that makes its signals absolutely incorrect is a shortcoming of Forex Momentum trading. Therefore, this tool can only be used in the complex strategies with various types of indicators.
Forex momentum trend trading system + EMA.
Indicators: two moving averages of EMA(9) are red, EMA(30) - the blue line; the Momentum (14) indicator with level 100.
Trade asset: the main currency pairs in the period of stable volatility.
Timeframe: H1 - for the search of point of entry and holding the position.
Decision making requires availability of Demark line connecting 3 minimum or 3 maximum fluctuations.
So, for a signal for purchase the following requirements must be satisfied: the price breaks Demark line up; the Momentum line moves higher than the level 100; the EMA(9) line crosses the EMA(30) line from bottom to top.
For a signal for sale the opposite conditions are necessary: breakthrough of the line of Demark down; Momentum line movement is lower than level 100; crossing of the EMA(9) line and EMA(30) line from top to the bottom.
We enter the transaction at opening of a new candle. Crossing of moving averages after breakdown of Demark trend line is allowed. We put Stop Loss on behind a local extremum: for sale - higher than a maximum, for the purchase - lower than a minimum. We will close the transaction right after the Momentum line crosses level 100 in the opposite direction.
Forex Momentum Elder Trading Strategy.
Indicators: EMA(19) moving average on closing prices and Momentum(18) with level 100.
Timeframe: for opening and holding a position on - H1. Strategy is based on multiple currencies, stable results are yielded by the main pairs - EUR/USD, GBP/USD, AUD/USD.
Alexander Elder always preferred trade in the direction of strong movement therefore we will use only trend characteristics of the Momentum indicator. The first signal which shall draw attention of the trader is the crossing level 100 by the Momentum (18) line.
As soon as an hour candle completely (or, at least, for 80%) is closed over the EMA(19) line we will enter a purchase at opening of the following candle. The Momentum (18) line at the same time shall move higher than the level 100.
Following Momentum strategy Forex it is necessary to close an hour candle below the moving average and to move the Momentum (18) line lower than the level 100.
As a rule Momentum Forex system signals appear consistently in such system. Availability of both signals is obligatory.
We put StopLoss on candle’s min/max before crossing level 100 by the Momentum line and we move further by means of a trailing in the direction of profit. The minimum TakeProfit is 2,5 times more than StopLoss.
Conclusion.
Forex Momentum trading Stable strategies using the indicator can be constructed only provided that Momentum signals are used as additional. On the small periods and during unstable volatility its signals in general cannot be trusted to as its line is redrawn and the previous signals are cancelled.
This pulse indicator is the excellent sensor of the market force, but it is necessary to use it carefully. In spite of the fact that there is only one parameter, it is recommended to select it carefully for the current volatility of an asset and it is obligatory to test it on historical quotations in Momentum Forex trading.