The Momentum Technical Indicator measures the amount that a security’s price has changed over a given time span.
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.
If the Momentum indicator reaches extremely high or
low values (relative to its historical values), you should assume a
continuation of the current trend.
For example, if the Momentum indicator reaches extremely high values
and then turns down, you should assume prices will probably go still
higher. In either case, only trade after prices confirm the signal
generated by the indicator (e.g., if prices peak and turn down, wait
for prices to begin to fall before selling).
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
Momentum is calculated as a ratio of today’s price to the price several (N) periods ago.
MOMENTUM = CLOSE(i)/CLOSE(i-N)*100
CLOSE(i) — is the closing price of the current bar;
CLOSE(i-N) — is the closing bar price N periods ago.
Full MQL4 source of Momentum is available in the Code Base: Momentum
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