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# Momentum

The momentum shows the rate of change (or strength) of a price movement over a selected period, expressed as a ratio. It is calculated by measuring the difference between the current price of the market and its price the selected number of periods previous.

When momentum is above zero and rising the price has upward momentum - increasing at an increasing rate. If momentum is above zero and declining, the prices are still increasing, but at a decreasing rate.

When momentum is below zero and falling, the price has downwards momentum - falling at an increasing rate. If momentum is below zero and increasing, then prices are still falling, but at a decreasing rate.

A simple way to use the indicator is to buy when the momentum crosses above zero (ie the price is gaining momentum) and sell when the indicator falls below zero (ie sell when the price is losing momentum).

The momentum indicator has its highest positive and lowest negative values when the trend is strongest, with lower readings at the beginning or end of a trend. Momentum changes direction ahead of price and as such, divergences between price and momentum can be used to anticipate price reversals. As the price peaks the momentum increases sharply and then falls off, initially diverging from price, for example the momentum will drop whilst the price continues to produce higher highs, or vice-versa. When a divergence between price and momentum occur, the momentum often provides an indication of the expected path of future prices. In a trending market, you can play this by buying when momentum bottoms and turns up; and selling when momentum peaks and turns down. Note: If the momentum is at a very high or low value relative to its historic average, then there will have been a rapid price increase or decline. The price will likely continue a little further in its existing trend forming higher highs / lower lows even though the moment has reversed - so wait for the price to reverse to confirm the signal.

In a sideways ranging market, look back at the past high and lows of the momentum indicator to determine overbought and oversold levels. Momentum crossing below the oversold level and then turning up can be interpreted as a buy signal. Momentum crossing above the overbought level and then turning down can be interpreted as a sell signal.

Strategies

Bullish signal: momentum crossing above zero and rising
Bearish signal: momentum crossing below zero and falling

Bullish signal: momentum crossing below oversold level and turning up
Bearish signal: momentum rising above overbought level and turning down

## Momentum Formula

The Momentum indicator is the difference between the current price and the price $\displaystyle n$ periods ago. The source data can be changed to target the high, low or open price, or any indicator where a reference is required between the current value and an historical value.

The formula used to calculate the Momentum indicator is:

$\displaystyle \text{Momentum} = \displaystyle \left ( \frac { \text{CLOSE} } { \text{Close } n \text{ periods ago} } \right ) * 100$

## Momentum Indicator

The Momentum indicator can be displayed on the TimeToTrade charts. To add the Momentum indicator to the TimeToTrade charts, go to the chart settings and click on the 'Add Indicator' button. Click on the search box and type the name of the indicator that you are looking for, or for example type Momentum and scroll through the results:

After adding the Momentum indicator, within the chart settings, click on it to set the parameters and change colours.

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