How to interpret MOMENTUM

The Momentum technical indicator measures the amount that a security’s price has changed over a given time span. It attempts to measure the momentum behind price movements for the underlying currency pair over a period of time.

How to interpret:

There are basically 2 ways to use the Momentum indicator:

• As trend-following oscillator (see the left part of the chart)
• Buy when Momentum bottoms and turns up. Sell when Momentum peaks and turns down. A short-term moving average applied to the indicator will help to determine the indicator’s turning points (violet line on the chart). If Momentum reaches extremely high or low values (relative to its historical values), the odds are that the current trend will continue. If Momentum reaches extremely high values and then turns down, assume that prices will probably keep going higher. Enter the market only after prices confirm the signal generated by the indicator – in this case wait for the prices to start falling and then sell.
• As a leading indicator (see the right part of the chart)
• Often Momentum begins to turn before price. When Momentum is diverging from the price, it may be regarded as a leading indicator pointing at potential top (when Momentum is falling while the prices are going up) or bottom (when Momentum is increasing while the prices are going down).