Momentum is an indicator/oscillator that measures the rate of change in currency prices. It evaluates the difference between today's closing price and the closing price n days ago. Usually a 10-days period is used for the calculation of this indicator. In this case momentum is calculated by taking the current closing price, subtracting the price 10 days ago, and plotting the results around the zero line. The results plotted can be negative when the current price is lower than oldest price or positive when the current price is greater than the oldest price.
Like MACD, Momentum also can be used as a trend-following indicator. A signal to buy occurs when the indicator reaches the bottom of a downward curve and then begins to grow; a signal to sell occurs when the indicator reaches the top of an upward curve and then begins to decline. As a forerunning indicator it can be used when the proximity of the market to top/bottom is accompanied by the drastic surge of the indicator, following by a decline in the value of the indicator while the rates continue to rise/fall or move horizontally. In such a case divergence takes place.
Methods of use:
| 1. | When the indicator reaches the bottom of a downward curve and begins to grow, it is a signal to buy. |
| 2. | When the indicator reaches the top of an upward curve, it is a signal to sell. |
