5.7 Momentum Indicator trading instructions

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Momentum indicator is a 'must' for any trend trader. The reason why is because it measures strength and weakness of a trend. Therefore, it provides us with good signals for entering and exiting a trade.

The momentum indicator is a 'leading' indicator which means that it works slightly ahead of prices. This means that it can be used to recognize trends before they actually form.

1. When the momentum indicator is above the centre line traders should look to get into a up-trend. When it is below the centre line, we should be getting into a down-trend. The only factors you must remember is not to trade in the opposite direction i.e. trading downwards when the momentum indicator is above the centre line and vice versa.

2. We can also use this indicator to trade divergence between itself and prices. So, when prices are making lower lows and the momentum indicator is making higher lows, we have divergence. It is here that we look to trade in the upward direction because the indicator has shown us signs of a weakening down-trend in the price chart.

3. The last way to use the momentum indicator is to wait for a breakout. After drawing a trend line in our price chart we would draw the same line in the indicator window. Once we have a breakout in both prices and the indicator, we can take a trade. Watch the full Forex training video to see how this powerful indicator can be used.