February 22

Momentum Indicator Explained

In Forex trading, there are hundreds of indicators that you use for your technical analysis. Some of the indicators are very easy to use while others are derived from complex mathematics that are difficult to understand. In this part, we will focus on the Momentum Indicators which I believe are very easy to use. However, just like all the other technical indicators, the momentum indicator tends to use the past information to guide traders.

As a result, it is not always accurate. In fact, I don’t recommend that you use the indicator as a stand alone. But then again, no indicator should be used as a stand alone with the exception of maybe only CandleStick (which we will cover in more advanced video tutorials). Its use should be combined with other indicators to form a more reliable signals when to buy, sell or stay in cash.

After accessing the momentum indicator in the left indicator panel, you should set it up. You can use any color of whatever width. After setting it up, you should now go the indicator and draw two horizontal lines. One should be at the area with the highest average points. The other one should be at the lowest point of the chart. The highest point indicates the area where the pair was overbought while the lowest point indicates the overselling point. After this, you should carefully observe when the market goes up and when it goes down.

When it goes up, make sure you understand the right position to go short. When it goes down, know the best position to buy. Just like all other indicators…for the indicator to work, one needs to be very careful in how you use it. Use it wrongly it does not matter how reliable a strategy is… it’s just not going work out well. Most importantly, one needs to understand the fundamentals for that particular day.

You need to look at the economic calendar and understand what could happen. A good example is when the Swiss Central Bank removed the peg on the Euro. In such a situation, if you followed the momentum indicator, chances are that you lost money. I recommend that you take a minimum of two days to read and practice using this indicator.

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