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Indicators: Momentum

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Automated-Trading
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Automated-Trading 2009.12.29 10:33 

Momentum:

The Momentum technical indicator measures the amount that a security’s price has changed over a given time period.

There are basically two ways to use the Momentum indicator:

  • You can use the Momentum indicator as a trend-following oscillator similar to the Moving Average Convergence/Divergence (MACD). Buy when the indicator bottoms and turns up and sell when the indicator peaks and turns down. You may want to plot a short-term moving average of the indicator to determine when it is bottoming or peaking.
  • You can also use the Momentum indicator as a leading indicator. This method assumes that market tops are typically identified by a rapid price increase (when everyone expects prices to go higher) and that market bottoms typically end with rapid price declines (when everyone wants to get out). This is often the case, but it is also a broad generalization.

As a market peaks, the Momentum indicator will climb sharply and then fall off - diverging from the continued upward or sideways movement of the price. Similarly, at a market bottom, Momentum will drop sharply and then begin to climb well ahead of prices. Both of these situations result in divergences between the indicator and prices.

Momentum Technical Indicator

Author: MetaQuotes Software Corp.

Sergey Golubev
Moderator
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Sergey Golubev 2013.08.24 17:14  
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