The Momentum indicator which is one of the indicators that get the most attention in the Forex market allows us to determine the trend of the financial asset that is subjected to trade and allows us to see whether the related price is in the overbought or oversold zone.
While 100 level is an important number we take as a reference in the interpretation of the indicator, this indicator is formed by taking into14-period moving average consideration.
The 14-period moving average that takes place in the indicator is the indicator’s standard term and it has the flexibility to be changed so that it becomes compatible with the asset price.
For instance, in order to focus on the instant view of the short term pricing behavior, the 14-period moving average can be changed to an 8-period moving average with the Fibonacci number.
One of the most important things to pay attention to in the Moment indicator is that it has the oscillator characteristics that help us see the trend expectation for the asset as well as the overbought and oversold areas. This means one indicator can serve in two categories (Trend & Oscillator).
To access the Momentum indicator from the MetaTrader platform, you can click respectively on Indicator then on Momentum, under the Insert menu in the ToolBar.
Before adding it to the platform, you can revise or make the 14 figure shared as a standard in line with how many averages of prices must be taken suitable to the financial asset that is to be bought or sold or revise from the “Parameters” section whenever you’d like. However, in the training, such change won’t be made and the standard pattern will be followed.
The Positive Or Negative Condition of the Momentum Indicator!
The most critical things to pay attention to related to the Momentum indicator while making a trade decision regarding the financial asset are to describe the trend expectation to the 100 reference level and to take the peak or bottom returns of the indicator into consideration as well as the overbought or oversold zones.
In the case where the Momentum indicator goes above level 100, it can be said the uptrend becomes stronger and if it goes below level 100, then the downtrend becomes stronger.
Observing a peak forming after the financial asset subject to trade creates exists above the level 100 in the positive zone with the momentum indicator, meaning the momentum line loses momentum after the formation of the peak allows us to see that the financial asset is in the overbought zone.
Observing a bottom forming after the financial asset subject to trade creates exists below the level 100 in the positive zone with the momentum indicator, meaning the momentum line trying to recuperate after the formation of the bottom allows us to see that the financial asset is in the oversold zone.
Momentum – Divergence!
The inconsistency between the asset pricing and the Oscillator indicator, which helps us see the overbought and oversold zones might be on the agenda in some periods.
The concept emphasized as divergence is the price and the indicator not moving in the same direction. Even though the Momentum indicator created a downward image, we see that the financial asset price goes upward. After a while where the incompatibility has an active role, the price shows a negative tendency and is compatible with the indicator.
For this reason, for the times where it is accepted as Positive or Negative incompatibility, our main focus point is asset price. The related incompatibility removes the buy-sell signal until the price and the indicator are compatible.
If the Oscillator indicators which help us see the overbought and oversold zones are used alone, times of incompatibility will affect trade performance negatively. Thus, no indicator should be used alone.