- Momentum is a general term used to describe the speed at which prices move over given time periods.
- Momentum indicators determine the strength or weakness of a trend as it progresses over time.
- To add a Momentum to the chart: in the top toolbar, select “Insert”, “Oscillators”, and then “Momentum”.
- Momentum is generally highest at the start of a trend and lowest at market turning points.
} If you want to get the odds on your side when trading you should ALWAYS enter a market with price strength on your side (if bullish) or weakness (if bearish).
- Stochastics are the ultimate momentum indicators to help you time your trading signals with greater accuracy.
- The 2 “Trigger” lines are plotted on a scale of 1 to 100.
- The 80% value is normally used as an overbought signal, while the 20% is used as an oversold signal.
- To add a Stochastics to the chart: in the top toolbar, select “Insert”, “Indicators”, “Oscillators”,
- Note the 0%, 20%, 80%, and 100% mark
} When the 2 lines intersect above the 80% or below the 20%, it means a change in the trend direction.
Relative Strength Index
- Developed by Wells Wilder, the Relative Strength Index is the most widely used contra-trend oscillator in the world. It shows the market’s strength compared to the market’s former price history.
- To add Relative Strength Index to the chart: in the top toolbar, select “Insert”, “Indicators”, “Oscillators”, and then “Relative Strength Index”.
- The shorter the Period of time used for the calculation, the more volatile the RSI will be.
- The RSI has a default of 14, which is the value devised by Wilder when originally calculating RSI.
- The main purpose of the RSI is to measure the market’s strengths and weaknesses. An RSI above 70, indicates an overbought bull market.
- On the other hand an RSI below 30 indicates an oversold bear market.
- MACD which stands for Moving Average Convergence / Divergence, is a technical analysis indicator created by Gerald Appel in the 1960s.
- There are three common methods used to interpret the MACD:
- Dramatic Rise
To add MACD to the chart: in the top toolbar, select “Insert”, “Indicators”, “Oscillators”, and then “MACD”.
- The lower graph presents the MACD line in blue and the signal line in red.
MACD shows the difference between a fast and slow exponential moving average (EMA) of closing prices.
- When the MACD falls below the signal line, it is a bearish signal, which indicates that it may be time to sell.
- Conversely, when the MACD rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward momentum.
- A crossing of the MACD line up through zero is interpreted as bullish, or down through zero as bearish.
- When the security price diverges from the MACD, it signals the end of the current trend.
- When the MACD rises dramatically – that is, the shorter moving average pulls away from the longer-term moving average – it is a signal that the security is overbought and will soon return to normal levels.
There’s another very Important Forex Trading system called Elliot Waves developed by Ralph Nelson Elliot.