Sometimes a trader spends a lot of time to find an effective tool to analyze the market situation. At the same time, he forgets or does not know that such instruments are available in the standard set of MT4 trading terminal. For example, momentum indicator refers to them. We’ll talk about him today. I want to warn you right away that you can’t build your trading on the signals of this indicator alone. It shows itself well as an additional instrument of techanalysis. Its inclusion in the trading system will allow to increase its efficiency due to more precise entry into the market.
Momentum indicator can be found in the “List of indicators” tab of the trading terminal. That’s where he’s in the Oscillators group.
As you can see, there are few parameters. The most important of them is the “period.” It can be called the “step” of the indicator. The value of this parameter will determine how many candlesticks momentum indicator will be used in its calculations. It is necessary to know that the higher the timeframe, the greater the period value should be. And, accordingly, if trading is conducted on a small TF, the period should be short. This will increase the accuracy of the signals. I would also like to note that this technical analysis tool works better on higher timeframes. The other parameters in the settings can be left unchanged. They concern the price that will be used in the calculations (close) and the design of the indicator line. In the “Levels” tab we add two values: +100 and -100. The indicator is ready to work.
Momentum application in trading
To make trade decisions using this indicator, you should pay attention to the direction of its line and its location relative to the 100 level. If it is crossed by a line from bottom to top, you can consider the possibility of buying, from top to bottom – sales. These criteria can also be used to close trades. For example, if we have previously opened a buy order when the 100 line crosses the bottom-up level, we can close it if the indicator line has started to move from top to bottom and is close to the 100.level.Let’s see what the above looks like on the chart.
Moment can also be used to track divergences that allow timely entry into the market. The essence of this trading method is as follows. If the price continues to move down in a downtrend, and the indicator line rises, it may indicate a rapid reversal in the direction of price movement. You can buy it. By analogy, we act on an uptrend as well.Example of divergence:
Momentum indicator is a simple and very useful indicator. Try to include it in your trading strategy and test it on a demo account. It may help you to improve your overall trading results.Fyodorov’s Inga30.04.2018