What is Momentum Indicator (Trading strategy)

Momentum indicator (MI) will tell you to strenth of the share price movement over the time period.

the calculation of this indicator is the difference between the current period closing price and the previous period closing price. which tells you how strong the price movement.

Momentum Indicator setting

momentum indicator setting
  • Period: The default period number is 14 which means calculation of the indicator will base on 14, period price.
  • Result: this is the color setting of this indicator.

Momentum indicator trading strategy

In the momentum indicator above the zero line is Positive side and below the zero line is the negative side.

If the indicator line is moving upwards in a downward direction. After crossing the zero line a sell signal generates.

If the Indicator line is moving downward direction to upward direction. After crossing the zero line a buying signal generates.

momentum indicator buying strategy

See above the chart, I have mark buying position and exit position using momentum indicator. indicator line is crossing zero line, the indicator gives a buying signal. and you can use the previous candle low as a stop-loss price. profit is up to you. you can use a 1:2 profit ratio or 1:3 etc profit ratio. but this indicator also gives you a profit or exiting position. when the indicator line is moving down to zero line. and line indicator line crosses the zero line then you can exit from the stocks.

momentum indicator sell strategy

See above the chart, when the indicator line is moving downward direction, after the cross, the zero line sell signal generates, and you can set your profit ratio or exit when indicator line is moving upward direction, after crossing the zero you can exit from the stock.

bearish divergence

See above the chart, the share price is moving upward direction and the indicator is Moving downward direction. This is a bearish divergence. Share price reversal will start soon. This is the signal share price may fall soon.

Similarly, If the share price is moving downward direction, and the Indicator line is moving upward direction. This is a Bullish divergence. The share price may reverse soon. This is the Singal share price will rise soon.

Conclusion

The momentum indicator is used to indicate the strength of the share price movement. above the zero line of this indicator is a positive side, and below the zero line is the negative side. you can buy share above the zero line and short sell share below the zero line. also when indicator and share price moving opposite to each other then share price reversal will start soon.

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