Momentum Indicators

These indicators are usually called momentum oscillators because the indicator line or histogram "oscillates" (or swings) up and down between or around specific values – much like a sine wave.

Various oscillators are calculated by different formulas, but they are all based on the relationship of the current price to previous prices for a specified period of time. Therefore, oscillators are lagging indicators (backward looking) and have no predictive use. Price confirmation must occur before entering a trade.

Momentum indicators work best in ranging markets. They tend to give false signals during breakouts and trends – especially when using hourly or shorter timeframe charts. Experiment with the parameters for various oscillators – remember, lower parameter numbers and shorter chart timeframes will give quick responses to price changes BUT with many false signals.

Momentum oscillators measure the rate of change of price movements (or the speed of price changes). Because FX volume cannot be easily measured, momentum indicators serve a valuable purpose in that they reflect market interest – as does volume in other instruments.

The theory is that a change in momentum tends to lead to a change in price. These indicators signal if;

• values are positive and rising – means prices are rising, indicating buyers are active,
• values are slowing – price rises are slowing, buyers are leaving the market,
• values are falling – prices are falling and sellers are active.

Reportedly the 3 main momentum indicators used by currency traders are;

1. The Relative Strength Index (RSI) oscillator
2. The Stochastic oscillator
3. The Moving Average Convergence Divergence (MACD) oscillator

Note: Momentum indicators are not useful in trending markets.

Momentum Indicators Useful in Forex?
Accumulation Swing Index Yes
Awesome Oscillator Yes
Centre Gravity Oscillator Yes
Chande Momentum Oscillator Yes
Commodity Channel Index Yes
Custom Detrend No
DiNapoli Detrend, DPO Yes
DiNapoli Preferred Stochastics No
Dynamic Momentum Index Yes
Gator Oscillator Yes
Intraday Momentum Index Yes
Kairi No
Linear Regression Slope Yes
Mass Index No
Momentum Indicator Yes
Price Oscillator No
Random Walk Index No
Range Indicator No
Rate of Change (ROC) No
Relative Momentum Index No
Relative Strength Index Yes
Relative Vigor Index No
Schaff Trend Cycle Yes
Schaff Trend Momentum No
Schaff Trend Cycle Yes
Schaff Long Term Momentum No
Stochastic Momentum Index No
Stochastic Oscillator Fast Yes
Stochastic Oscillator Slow Yes
Stochastic Oscillator Full Yes
Swing Index Yes
True Strength No
Ultimate Oscillator Yes
Williams' %R Yes
Williams' Accumulation/ Distribution Yes

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