What is a Momentum Indicator in Forex
Momentum indicators in Forex are great for measuring the speed of prices over a specific period of time in order to get in and out of the trade at the right moment. You want to be able to get in when momentum is accelerating, indicating that traders have great confidence in the current trend. You want to be able to get out when momentum is decelerating, indicating uncertainty for traders as they re-evaluate the odds of chasing the price.
Trend indicators can identify the up or down trend and can tell you of a pending trend reversal, but they cannot tell you the moment of entry/exit as well as momentum. Momentum indicators can show you the best moment to make the trade, to buy or sell with the higher odds that the market will move in your favor. They can can also tell you when the momentum of the trend is weakening, and you can use this information to take profits or re-adjust your trailing stops.
Good examples of momentum indicators are Momentum, RSI, and Stochastics.
| Trend Indicator Relevance | Relevance |
|---|---|
| Momentum Indicator | The oldest (simplest) momentum indicator |
| Relative Strength Index (RSI) | The most popular momentum indicator |
| Stochastics | Second most popular momentum indicator |
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