Momentum Indicator Guide
The momentum indicator for MT5 provides Forex and crypto traders with market trend insights. The MetaTrader indicator is engaged to specify the power of bulls and bears behind trends in the market. Consequently, forex traders may forecast the next bullish and bearish directions by utilizing this momentum tool. As its nomination stipulates, the momentum strategy only displays the current market conditions in Tradingview charts. In fact, forex pairs and stock prices move slowly in a time and fast in another time. So, that technical indicator can help you to identify market trend momentum by measuring the amount of change of the price over a specified period of time. In short, that super momentum indicator for MT4 provides traders with potential buy and sell signals along with divergence signals of the market price.
Momentum Indicator FAQ
What is momentum indicator ?
The momentum (MOM) is a type of technical oscillator indicator. Created to measure the momentum behind price movements. It plots a line that oscillates around a centerline which is 100, MOM has no limit neither upper nor lower. This indicator is available by default in MetaTrader platforms.
The momentum strategy informs Forex traders how slowly or fastly the security’s price is going up or down. It measures basically the rate of change of price movement of a financial instrument. This concept compares the current price with the previous price of an asset from a number of periods in the past. Moreover, in forex, the momentum indicator is considered a leading indicator. This means that can predict the changes in the market before they occur.
Characteristics of the momentum indicator
Momentum Tradingview indicator has some characteristics which are:
- It is a leading indicator for discovering market swings.
- You can use it to pinpoint early signals of probable changes in the trend.
- Works better when adding another relative indicator to it.
- In ranging prices, it produces a lot of false signals.
How does momentum indicator work ?
The momentum indicator in MT4 should be combined with other indicators to get better results. If the MOM MT5 indicator reaches very high or low values (compared to its historical values), you have to suppose that the current trend will continue. We mentioned earlier that this Tradingview indicator does not have an upper and lower limit, therefore, you have to check visually the history of the mom line and plot flat lines along its upper and lower limits. When the MOM line reaches these lines it may tell that the stock can be overbought or oversold.
Example
Momentum MT4 indicator which can be applied to possesses only one variable in its calculations. This variable is n which represents the number of periods in which the prior close price would be. This indicator allows traders to modify this value in the indicator settings before adding it to the chart. You can use the Tradingview momentum strategy in several ways. Forex traders can observe the trend whether the MOM indicator is positive or negative. Also, you can use this line as a bias for a reversal in momentum when crossing above or below 100. And this is should be in confluence with the movement of the price or with the long-term trend. It can serve to identify the divergences as it is a type of oscillator.
A rule that you should keep in your mind is that when using a short timeframe, the performance will be sensitive because it can generate more false signals compared with the long timeframe.
Momentum Indicator formula
Momentum MT5 indicator makes a comparison between the current closing price and a specified closing price “n” period ago. The “n” period is an input value that is identified by the trader. The default value for n on MetaTrader is 14, but you can put your own settings according to your objectives. So if you set n to 14, then you would compare the current closing price to the closing price 14 periods ago.
There are two methods to calculate the M:
- Calculation 1: M = CP – CPn
- Calculation 2: M = (CP / CPn) / 100
Where: M: Momentum, CP: Closing price, CPn: Close price n period in the past.
The first calculation just takes the difference between the 2 closing prices. While the second one calculates M as the rate of change in the price and offers it in percentage. The momentum strategy for Tradingview reveals when the price is moving upward or downward and how much is strong. When the first calculation gives a positive number, then the price is higher than the price n periods ago. And if gives a negative number, the price is lower than the price n period ago. In addition, when the second calculation gives a result higher than 100%, then the price is above the price periods ago. While, if it is lower than 100%, then the price is below the price n periods ago.
How to trade with a momentum indicator ?
Momentum MT4 indicator is generally used as a confirmation tool based on investor sentiment. It allows traders to pinpoint the power behind price movement. Mom oscillator can help you to identify the possibility of continuation in the direction of the main trend. You can use this MT5 indicator to provide trade signals, but it is better to use it to help to ensure the validity of trades according to price actions such as breakouts or pullbacks.
Therefore, the Tradingview momentum strategy provides three primary signals, which are 100 line cross, crossover signals, and divergence signals. We will go through each of these three signals one by one.
Example 1 : Crossing of level 100
100 line cross is a kind of signal provided by the mom indicator MT4. When the price crosses above the 100 line (or the zero line if the indicator is based on the first method of calculation), it exhibits an uptrend and bullish signal, and this indicates a buy signal. On the other hand, when the price crosses below the 100 line, it shows a downtrend and a bearish signal, and this tells a sell signal.
The 100 line cross should not be used in isolation because it can prone to whipsaws. This means that the price can move above the line but then fall back directly below it. The important thing here is to look at the price when it is in relation to the 100 line and utilize other filters to find the best opportunities. For instance, if the stock is in an upward trend, you can buy only when the mom oscillator drops below the 100 line and then crosses back above it. Besides, if the stock is in a downtrend, you can do a short sale, which means selling the borrowed shares of the stock with the intention of purchasing them back and returning them later at a lower price when it falls back below the line.
Example 2 : Crossover signals
We said earlier that you can add another indicator to the momentum MT5 indicator. Commonly this would be a simple moving average of the momentum itself. This will be a second line in the momentum chart. The length of the MA is chosen by the trader. A lot of traders use 10, 14, or 21 periods MA. But keep in mind that higher periods result fewer amount of signals and vice versa. The momentum and the moving average lines must be drawn to employ the crossover signal. The strategy is to buy when the mom line crosses above the MA from below, and sell when it crosses below the MA from above.
This momentum strategy has its issue too, the problem is the same as the whipsaw issue. This can be solved by moving again only on trade signals in the trending direction. Therefore, if it is a downtrend, make a short trade when the mom moves above the MA and then falls below. Leave the short trade when the mom shift above the MA. You should try diverse MA lengths and mom sets to find a combination that functions for your trading style.
Example 3 : Divergence signals
The momentum indicator for Tradingview can provide divergence signals. It is a simple but effective concept in technical analysis. These happen when market prices push very far to the extremes. Divergence can be bearish or bullish. Bullish divergence happens when the prices produce lower lows but the MT5 mom indicator produces higher lows. It indicates while the price is falling, the momentum behind the sale is slowing. Therefore if you obtain a buy signal, the bullish divergence can ensure it. Otherwise, bearish divergence happens when the prices make higher highs, but the MT4 mom indicator makes lower highs. It indicates while the price is growing, the momentum behind the purchase is slowing. Therefore, if you obtain a sell signal, the bearish divergence can ensure it.
Download Momentum Indicator for MT4
The momentum indicator is a very simple MT4 indicator in Metatrader 4. It is available in the MetaTrader 4 platform as a default indicator. So you can put it directly into your chart from the indicators list. This MT4 indicator could be the perfect tool for you. Whether you are a day trader or position player. The basis of this technical indicator is to transform the accumulated historical data.
Download Momentum Indicator for MT5
The momentum indicator is one of the best MT5 indicators used by many Forex traders to compare current and previous prices of security against earlier events some periods ago. This MetaTrader 5 indicator displays in a separate window below the main price chart. You can add another line like the moving average to get the best signals.
You can in the picture below that the momentum line oscillates around the 100 line and it has no limit.
Download Momentum Indicator for Tradingview
Momentum indicator Tradingview is a popular oscillator indicator. It can notice diverse specificities and patterns of price dynamics not visible to the naked eye. And based on this information, traders can assume other price actions and adapt their strategy consequently.
Conclusion
The Tradingview Momentum indicator is very helpful for technical traders as it reveals the background scenario in the market. It offers momentum signals. Therefore, it allows traders to understand the market quickly and make decisions easily. You can use it for intraday trading or day trading to increase your trading performance.
Key takeaways
- The momentum indicator in MT5 is a type of technical oscillator indicator.
- It displays a line in a separate window below the main price chart that oscillates around the 100 line.
- Mom line has no limit neither upper nor lower.
- This MT4 indicator measures the rate of change of price movement of financial instruments.
- Considered a leading indicator as it can predict the changes in the market before they occur.
- Compares the current price with the previous price of an asset grom a number of periods in the past.