Making money from forex trade is not as easy as you may think. Monitoring market movements is mentally stressful and time-consuming. However, this whole process can be made easier through automation and the use of indicators.
There are many available and ready indicators that traders can utilize for profit-making. We will look at the principle of the Momentum Indicator Mt4 and how it is calculated.
We will also evaluate the best step of installing this indicator, and some of the signals that could be combined with it while trading. So enjoy the article and let’s see if this one will make our winning list off Forex indicators.
What is Momentum Indicator MT4?
Momentum is a concept in market analysis for defining the rate of change in assets/ security. The Momentum IndicatorMt4 is one of the top oscillators traders use in comparing current and previous prices of an asset as against earlier occurrences some periods ago. It shows a particular oscillating line and gives trading signals every time the line extends to the extreme levels.
Features of the Indicator
- Momentum indicator Mt4 is a leading indicator for finding the market swings (top and bottom).
- It can be used to identify the early signals of the possible trend changes.
- Momentum indicator Mt4 works best when combined with another relative indicator.
- Nevertheless, in ranging prices, momentum indicator Mt4 produces a lot of false signals.
How the Momentum MT4 Indicator works
Already mentioned is the fact that the momentum indicator Mt4 should be combined with other indicators for the best results.
Nonetheless, the momentum indicator Mt4 detects a price’s bullish and bearish movements. It is achieved by comparing the current price and past price of the asset.
For a buy signal, the indicator goes below zero marks. But, when it moves above the 100 and takes a downward movement, it is a sell signal.
As earlier said, The Momentum Indicator MT4 relates to the current closing price with a specified closing price “n” period ago. The value of the “n” period is based on the trader’s decision. The momentum indicator settings used by some charting software programs are usually 10 or 14.
M = (CP / CPn) * 100
Where M = Momentum, CP = Closing Price,
CPn = close price N periods ago (lagged closing price).
If 14 is chosen as your “n,” the current closing price will be compared to the closing price 14 periods ago.
Your charting program will plot the output values.
An Easy Way of Installing the Indicator in MT4
The momentum indicator is a widespread Metatrader indicator. Most brokers make available this indicator in their terminal. By default, this indicator is accessible in your terminal, provided you use MT4.
Usually, most of the MT4 indicators show in another window at the bottom of the MT4 chart. But, you may follow these steps to have this indicator in your chart:
- Open your MT4 terminal and click on the Insert window.
- The Insert window has a couple of indicators there.
- Click the Oscillator.
- At the pop up of another box, click on the Momentum indicator.
Momentum Indicator MT4 Signals
Traders can work with ease and have accurate market signals if they use Momentum Indicator MT4 with another indicator. A second line can be added to the Momentum Chart Indicator. Ideally, the Simple Moving Average (SMA) of the critical Momentum Indicator can be used.
The trader decides on the length of the moving average to use. Note that less amount of signals result from higher periods and vice versa. The Momentum and MA lines must be plotted to use the crossover signal. The basis is that you buy when the momentum indicator/line crosses the SMA line from above and sell when it crosses the line from below.
The Momentum Indicator MT4can give divergence signals. These occur where market prices have pushed too far to the extremes. A Divergence can be bullish or bearish. A situation where prices are having lower lows, but the other oscillator is having higher lows is called a Bullish Divergence. Bearish divergence is a situation where prices are presenting a higher high, but the oscillator is showing a lower high.
A weak momentum, most times, results in a price retracing (a trend reversal). It’s best not to use divergence separately as they may give false signals during strong market trends. Traders must understand the occurrences on the larger time frame. It will help to filter out trades of low probability.
100 Line Cross
100 line Cross is a type of signal used by the Momentum Indicator. Usually, when the price goes above the 100 Line, it shows an uptrend and a bullish signal. Likewise, when the price falls below the 100 Line, it indicates a downtrend and a bearish signal. Also, the 100 Line can cause whipsawing if used in isolation.
Price Extreme Signals (RSI Strategy)
Overbought and oversold market conditions are considered as “price extremes.” They can be used to spot points of price reversal. Traders can make use of Momentum and Relative Strength Index (RSI) to achieve results. Within a long interval, the Signal line of momentum sometimes tends to stay at a price extreme. Prices may remain lower/higher in a down/uptrend.
When both the Momentum and RSI are at the lowest level, it’s ideal for holding on for the sudden reversal to the upside on both to buy. On the other hand, when the two successively form higher zenith, it indicates oversold conditions. This condition creates a vast supply in the market. The sudden reversal on the indicators implies that there’s demand in the market.
Conclusion Momentum Indicator MT4
As seen from the above evaluation, Momentum Indicator MT4 is an essential tool for traders. It works by oscillating its windows to identifying buy or sell signals. These signals are derived when there is a change in the direction of the signal line. When the signal line goes downwards and suddenly switches to the upward direction, it is a new signal to buy and vice versa. Every trader ought to know what the market signals represent.
Although Momentum Indicator Mt4 gives early reversal signals, it can also provide a fake signal. That’s a reason why Momentum Indicator Mt4 should not be used alone. A combination of Momentum Indicator with others will give the trader a better edge.
However, this is not all since there are numerous tools available here for you to improve the profit margin. Check it out from this link and start the journey to be part of the wealthy clan of traders.