The Momentum Congestion indicator helps to filter out unwanted noise and false signals that often occur in sideways markets with traditional momentum indicators. At its core, this indicator uses information from momentum indicators that the user can select.
This indicator draws a multi colored average line, guidance on these lines are as follows:
- Line turns Green: Upward momentum has gained enough traction to form a reliable buy signal. It is only recommended that any buy order takes place soon after the line changes color.
- Line turns white/black: Depending on the background chart color, sideways 'Congestion' will appear white or black in order to minimize visibility. During these periods the market is congested. While traditional momentum indicators may give signals, the Momentum Congestion indicator will not give such signals.
- Line turns Red: As the line turns red this means that downward momentum has increased and it is a good selling signal. Again, like the buy signal, it is best to place any trade soon after the line changes color.
The inputs for this indicator are as follows:
- Period of Average Line: Indicator line is a moving average, determine the period of this average.
- Shift of Average Line: Offset of the average line.
- Use RSI: Option to use the Relative Strength Index as the momentum indicator.
- RSI Period: The period setting for the RSI indicator.
- Use CCI: Option to use Commodity Channel Index as the momentum indicator.
- CCI Period: The period setting for the CCI indicator.
- Use Stochastic Oscillator: Option to use the Stochastic Oscillator as the momentum indicator.
- Stochastic K Period: Period for the %K line of the Stochastic Oscillator.
- Stochastic D Period: Period for the %D line of the Stochastic Oscillator.
- Stochastic Slowing Period: Period for the Slowing line of the Stochastic Oscillator.
The screenshots below show various examples of upward and downward momentum and sideways congestion in multiple time frames.