Momentum Indicators

These indicators are usually called momentum oscillators because the indicator line or histogram “oscillates” (or swings) up and down between or around specific values – much like a sine wave. Various oscillators are calculated by different formulas, but they are all based on the relationship of the current price to previous prices for a specified period of time. Therefore, oscillators are lagging indicators (backward looking) and have no predictive use. Price confirmation must occur before entering a trade. Momentum indicators work best in ranging markets. They tend to give false signals during breakouts and trends – especially when using hourly or shorter timeframe charts. Experiment with the parameters for various oscillators – remember, lower parameter numbers and shorter chart timeframes will give quick responses to price changes BUT with many false signals. Momentum oscillators measure the rate of change of price movements (or the speed of price changes). Because FX volume cannot be easily measured, momentum indicators serve a valuable purpose in that they reflect market interest – as does volume in other instruments. The theory is that a change in momentum tends to lead to a change in price. These indicators signal if; • values are positive and rising – means prices are rising, indicating buyers are active, • values are slowing – price rises are slowing, buyers are leaving the market, • values are falling – prices are falling and sellers are active. Reportedly the 3 main momentum indicators used by currency traders are; 1. The Relative Strength Index (RSI) oscillator 2. The Stochastic oscillator 3. The Moving Average Convergence Divergence (MACD) oscillator Note: Momentum indicators are not useful in trending markets.

Momentum Indicators Useful in Forex?

Accumulation Swing Index Yes

Awesome Oscillator Yes

Centre Gravity Oscillator Yes

Chande Momentum Oscillator Yes

Commodity Channel Index Yes

Custom Detrend No

DiNapoli Detrend, DPO Yes

DiNapoli Preferred Stochastics No

Dynamic Momentum Index Yes

Gator Oscillator Yes

Intraday Momentum Index Yes

Kairi No

Linear Regression Slope Yes

MACD Yes

Mass Index No

Momentum Indicator Yes

Price Oscillator No

Random Walk Index No

Range Indicator No

Rate of Change (ROC) No

Relative Momentum Index No

Relative Strength Index Yes

Relative Vigor Index No

Schaff Trend Cycle Yes

Schaff Trend Momentum No

Schaff Trend Cycle Yes

Schaff Long Term Momentum No

SIROC No

Stochastic Momentum Index No

Stochastic Oscillator Fast Yes

Stochastic Oscillator Slow Yes

Stochastic Oscillator Full Yes

Swing Index Yes

TRIX Yes

True Strength No

Ultimate Oscillator Yes

Williams’ %R Yes

Williams’ Accumulation/ Distribution Yes