Momentum indicators are technical analysis tools to help traders understand if price has the energy to move (hence momentum). They often are computed using price movement, closing price and current price.
The most popular momentum indicators are RSI, Stochastic Oscillator, MACD Indicator and many more are available (more than 20 different indicators).
Each of these technical indicators are very easy to add to your price chart using TradingView. As you likely noticed, most of the price charts visible on our site are taken from this tool.
How to use momentum indicators?
Momentum indicators can be used in 2 principal ways:
- Standalone as their value reaches overbought or oversold conditions. It happens for example when price moves down for a long period of time. Indicators would then reach oversold levels
- In conjunction with the price with bearish or bullish divergence. It happens for example when the price made a new high but the indicator did not. It here creates a bearish divergence and hints as a sell signal and a trend reversal.
Keep in mind that although very powerful, as everything else in technical analysis, it remains based on probabilities and can create false signals.
Momentum indicators allow traders to better understand the speed at which the price of a given security changes. They are a great hint to understand the strength of price movements.
What are the current market trends?
Is it a strong trend or will the current trend likely to reverse?
You need good tools to figure out!
Leave a Reply