Momentum

The Momentum indicator is used by traders as an early indicator for a change in direction of a trend. This is because the Momentum indicator often precedes price movement during a change of trend.

Interpreting Momentum

This tool is not confined within a range, and therefore it is not suitable to identify overbought/ oversold levels. However, when crossing the 0 level this indicator gives good buy/sell opportunities, and also gives good divergence signals.

A bullish divergence occurs when the trading instrument’s price reaches new lows but Momentum fails to make new lows.

A bearish divergence occurs when the instrument’s price reaches new highs but Momentum fails to make new highs.