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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.
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.