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Momentum

Momentum is a technical indicator that measures a price change made by a currency pair over a certain period. Traders use the momentum indicator in the following cases.

For example, it is used as an oscillator trailing a trend. Thus, if the indicator forms a hollow shape, it gives a signal to buy. On the contrary, if the indicator reaches a top and reverses downward, it is a signal to sell. Too low or high values of the indicator mean that the trend is going on. A reversal downward following extremely high values indicates a further increase of prices. However, one should not open or close a position until actual prices confirm an indicator’s signal.

Besides, this indicator is used by traders as an oscillator moving ahead of a trend. In this case, it is always true that a bull trend comes to an end with fast growth of prices. In contrast, a bear trend finishes with a fast decline in prices.

When the market reaches its top or bottom, one can watch quick moves of the indicator which are accompanied by deviations between a price and the indicator.

Calculation

Momentum is calculated as a ratio of today`s price to the price several (N) periods ago.

MOMENTUM = CLOSE(i)/CLOSE(i-N)*100

where

CLOSE(i) is the closing price of the current bar;

CLOSE(i-N) is the closing bar price N periods ago.

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