By: Adrian Friggieri
Like other indicators in our forex trading toolbox within our platform we find the forex momentum indicator. This is very similar to other indicators and oscillators like Moving Averages or MACD to follow the main trending direction of the pair you are following. Some traders would consider the forex momentum as the primary, or possibly the most important indicator to help identify the main market direction and help spot potential market reversal points.
You could also say that it is like a market sentiment for a specific period of time. For example at the moment the Euro against the dollar has been in decline, we call that a bearish momentum where the market is moving to the downside for the pair. The help of a valid indicator would of course help you during your trading session by applying the indicator to various time frames during your trading. This would help you consolidate your trading plan entry or exit points.
Test them first
Remember that you should only use these indicators after proper testing and in conjunction to a solid trading plan. Do not use indicators if you are not familiar with its main features and the main reactions to various market conditions during a typical trading day.
Some trading indicators might not be very useful for example during high volatility or vice versa. So a proper understanding and research of the tools you are adopting to your trading plan is essential. Forex momentum could be used to either a specific pair, like the EUR/USD or to a specific currency or commodity, like the USD or Gold for example.
Some traders would use also momentum indicators in forex to determine a specific trading range. Just like range trading the momentum indicators would help spot a support and a resistance point where the trader would either trade the volatile movements within the range or even possibly try to identify a possible breakout that would lead to consolidate a larger number of pips.
The most common combination I have found is to be used in conjunction to the ATR (average true range) and MA’s (Moving Averages), typically some very good trading setups could be identified with these tools. Again, do test any new strategy well before getting into any live trading, happy pipping!