Fri, 19 Jan 2007 16:31:30 MST Written by Pete V.
Developed by Donald Lambert, the momentum indicator measures the difference between the current market price of a currency pair and the price of the same currency pair a certain number (n) of days ago.
Trading Momentum is very simple. Buy a currency pair when Momentum crosses from below the zero line to above or sell when Momentum crosses from above the zero line to below; however, to achieve better trading results from Momentum, below you will find the trading rules for use in both trending and ranging currency markets.
Popular trading signals from Momentum
- I. Ranging Markets
Go Long when the Momentum indicator falls below the oversold level and then crosses the zero line from below;
- II. Trending Markets
Is the market trending or not? First, measure the strength of the trend using a trend-confirming indicator such as ADX or draw a simple trend-line to find out.
The Momentum indicator tends to stay above the zero-line during an up trending market and below the zero-line in down trending markets.
Take trading signals only in the main direction of the trend!
- Up trending market: Go long when the Momentum indicator falls below the zero-line and then turns back above;
- Down trending market: Go short when the Momentum indicator rises above the zero-line and then turns back below.
Please remember that Momentum, as with all other technical indicators should not be used by itself butshould be combined with other indicators / studies to make a complete forex trading system.
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