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Momentum
Introduction
The momentum indicator was presented by J. Welles Wilder and it is used to measure the speed of change of the price. Typically, it is a 10-day indicator taking values around a zero line, which are found by subtracting the closing price from 10 days ago from the current closing price. If the value of the momentum is above the zero line that means that, the price has been rising for the last 10 days (on an average) and you should go long. If the value is less than zero it means that, the price has been falling for the last 10 days (on an average) and you should go short. In both cases the trader hopes that the trend will continue thus generating profit. However, the momentum indicator is rarely used on its own, usually it is used in combination with other indicator to give you a more accurate buy or sell signal.
Calculation
The momentum indicator is calculated as a difference between the current closing price and the clising price of a bar, which is 10 bars back.
Momentum(t) = Price Close(t) - Price Close(t-n)
Where:
t - the number of the current bar.
n - the Momentum period.
Parameters
Logic - from this dropdown box we chose the logic of using of the indicator. The possible logics are:
- The Momentum value is rising.
We have a signal buy when the current bar value of Momentum is higher than the previous bar value. And we have a signal sell when the current bar value of Momentum is lower than the previous bar value. - The Momentum value is falling.
We have a signal buy when the current bar value of Momentum is lower than the previous bar value. And we have a signal sell when the current bar value of Momentum is higher than the previous bar value. - The Momentum value is greater than Level.
We have a signal buy when the current bar value of Momentum is higher than the specified Level value. And we have a signal sell when the current bar value of Momentum is lower than the specified Level value. - The Momentum value is lower than Level.
We have a signal buy when the current bar value of Momentum is lower than the specified Level value. And we have a signal sell when the current bar value of Momentum is higher than the specified Level value. - The Momentum value crosses the Level line from below.
We have a signal buy when the current bar value of Momentum is higher than the specified Level value and the previous Momentum value is lower than the Level value. And we have a signal sell when the current bar value of Momentum is lower than the specified Level value and the previous Momentum value is higher than the Level value. - The Momentum value crosses the Level line from above.
We have a signal buy when the current bar value of Momentum is lower than the specified Level value and the previous Momentum value is higher than the Level value. And we have a signal sell when the current bar value of Momentum is higher than the specified Level value and the previous Momentum value is lower than the Level value. - The Momentum value changes from downward to upward.
We have a signal buy when the current bar value of Momentum is higher than the previous bar value and the previous Momentum value is lower than the Momentum value of the bar before the previous one. And we have a signal sell when the current bar value of Momentum is lower than the previous bar value and the previous Momentum value is higher than the Momentum value of the bar before the previous one. - The Momentum value changes from upward to downward.
We have a signal buy when the current bar value of Momentum is lower than the previous bar value and the previous Momentum value is higher than the Momentum value of the bar before the previous one. And we have a signal sell when the current bar value of Momentum is higher than the previous bar value and the previous Momentum value is lower than the Momentum value of the bar before the previous one.
Method - During the calculating of the Momentum, the Forex Strategy Builder uses Moving Averages to smooth the values. From here we can chose the calculation method of the MA.
- Simple - Simple Moving Average.
- Weighted - Weighted Moving Average.
- Exponential - Exponential Moving Average.
- Smoothed - Smoothed Moving Average.
Base Price - the base price for calculating the indicator.
- Open - the first price for the bar.
- High - the highest price for the bar.
- Low - the lowest price for the bar.
- Close - the last price for the bar.
- Median - (High + Low)/2.
- Typical - (High + low + Close)/3.
- Weighted - (High + low + 2*Close)/4.
Use previous bar value - when we open a position on price different than Price Close or Day Close, we have to mark this check box. This guarantees us that at the time of opening we use the correct indicator's value.
Level - we chose a value here when it is needed from the Logic.
Default parameters
- Logic
- Smoothing Method
- Base Price
- Period
- Level - 0.0000
Usage