What Is Momentum Indicator
The Momentum indicator is a speed of movement indicator designed to identify the price movement’s speed (or strength). It compares the most recent closing price to a previous closing price (can be the closing price of any time frame)
As the name suggests, the momentum indicator uses momentum to determine the strength or weakness of a stock’s price. Measuring the rate of the rise or fall of stock prices can help traders enter or exit the market efficiently.
How To Calculate Momentum Indicator
Formula:- M = CP – CPn
M is a comparison between the current CP and a closing price “n” periods ago CPn.
Why Use Momentum Indicator
The Momentum Indicator compares the most recent to a previous closing price on any time frame and is shown as a single line on its own specialised chart separating it from the price bars. As it determines whenever the price is moving downwards, upwards, and by how much – traders can use it as a trading signal or let it help confirm trades base on the price action.
How To Use Momentum Indicator
Bullish Scenario:- When MI value goes positive, i.e. it moves above 0, it is considered a bullish scenario indicating the momentum of the prices is going upwards.
Bearish Scenario:- When the MI value goes negative, i.e. it moves below 0, it is considered a bearish scenario indicating the momentum of the prices is going downwards.
Building Momentum Indicator Trading Strategy On Mudrex
BUY:- MI crossesup 10 with a signal period of 10 days.
SELL:- MI crossesdown (-10) with a signal period of 10 days
TIME FRAME:- 1 Day
Creating on Mudrex:-
We will use 2 MI indicator blocks. One for selling and One for buying.
For buying, we will use the following settings:-
For selling, we will use the following settings:-
Running backtest on Binance Futures: BTC/USDT with tick interval of 1Day yielded an overall profit of 224.47%