Momentum indicator value is defined as the difference between price levels after a specified time period. If, for example, we take period 5, then the Momentum oscillator will be defined as the difference between the current close and the close 5 bars before. All negative and positive values are displayed on the chart with a zero line in the middle.
In MetaTrader 4, the Momentum indicator is defined not as the difference, but the correlation between the current price and the price n periods before:
MOMENTUM = CLOSE (i) / CLOSE (i – n) * 100
CLOSE (i) — current bar close;
CLOSE (i – n) — close n bars before.
If the indicator is below 100, then the market is bearish;
If above 100 then the market is bullish;
If the indicator is around 100, it signifies a flat market;
Bullish divergence / bearish convergence – the main signal of the weakness of the prevailing trend;
In a flat market, exit from the overbought (oversold) areas is a signal to sell (buy).
In order to add Momentum indicator to the active chart in MetaTrader 4, use the “Insert -> Indicators -> Oscillators -> Momentum” menu sequence.
Bullish Divergence / Bearish convergence is the Main Momentum Signal: