Do you have a trading strategy that works? Is it profitable? How much did you make yesterday?
Is that tornado of silence I smell?
I know. That happens to almost every trading newbie. You will blow an account or two before you can find your bearing.
But it doesn’t have to be like that, you can learn from other traders’ past experiences and grow your account on their backs.
In today’s post, we discuss technical analysis trading with the momentum indicator. Ever heard of it?
The momentum indicator could just be the piece that you’ve been missing to achieve profitability.
What to Expect on This Guide:
- What is the Momentum Indicator?
- The Principle behind the Momentum Indicator.
- How to Set Up the Momentum Indicator on Iq Option.
- Using the Momentum Indicator to trade Forex on Iq Option.
What is the Momentum Indicator?
The Momentum Indicator is a technical analysis tool that is used to identify the strength of a trend and velocity of price changes.
It is one of the simplest technical indicators designed to identify the strength of price movement over a specified period.
It compares the latest closing price to a previous closing price of any time frame, say for example 14 periods ago.
Whoever invented the Momentum indicator is not known but Martin Pring popularized the indicator.
The momentum indicator appears as a simple continuous line at the bottom of the Iq Option chart while in use.
It can be used on any asset on Iq Option.
The Principle behind the Momentum Indicator.
The principle behind this indicator is quite simple.
As earlier mentioned, the Momentum Indicator compares the current price of an asset to the price of the asset several periods ago. Let us use the default setting of the Momentum Indicator which is 14 periods.
That is to say that if the current price is higher than the price 14 periods ago, the indicator reading will be higher above zero. The vice versa is true!! If the current price is lower than the price 14 periods ago, the indicator reading will be lower below zero.
Consequently, if there is no difference between the current and the price 14 periods ago, the indicator reading remains at 0!! This means that the current price is equal to what was the price of the asset 14 periods ago. This points to a sideways market trend which is an unclear zone unfit for either Buy or Sell!!
The momentum indicator can utilize the four different price dimensions of an asset – Maximum, minimum, opening, and closing prices. The closing price is most commonly preferred in the computation of the tool.
That is the simple rationale or Principle behind the momentum indicator.
How to Set Up the Momentum Indicator on Iq Option.
Set Up the Momentum Indicator on Iq Option in the following steps.
- Log in to your Iq Option trading account.
- Locate the Tools Tab at the bottom of the interface – Scissors like.
- Hit the Tools Tab.
- Select Indicators from the Options that pop up. A list of Indicators will appear.
- Move your cursor sideways on momentum and Select MOMENTUM from the list.
- A pop up will appear for you to modify the period, color, and width of the Indicator.
- Hit the Apply button once you adjust those parameters.
- A continuous line will appear at the bottom part of the interface below the chart.
Momentum Indicator is ready for use!!!
Using the Momentum Indicator to trade on Iq Option.
As earlier mentioned, the Momentum Indicator compares the current price of an asset with the price of the same asset several periods ago.
The Momentum Indicator allows you to set the number of periods it will refer to while computing its values. Let us say you decide to use the default 14 period setting of the Indicator.
If the current price is higher than what was the price of the same asset 14 periods ago, then the indicator reading will be above zero. The higher the current price goes above the price 14 periods ago, the further the line will go above the zero mark on the indicator scale.
If the current price will be lower than what was the price of the asset 14 periods ago, then the indicator reading will be below zero. The lower the current price goes below the price on the asset 14 periods ago, the further the line goes below the zero marks on the indicator scale.
If the current price equals the price 14 periods ago, the indicator will remain at zero. No difference has been made from the reference initial price.
The momentum indicator identifies the strength of a trend by determining the velocity of price changes. It is that easy.
The higher the indicator reading goes above zero, the faster the upward price movement. The lower the indicator reading below zero, the faster the downward price movement!! If the indicator remains at zero, then the price movement is at zero velocity!!
We need to transform this vast knowledge about the Momentum into profitable trading on Iq Option now!!
You must have noted that basically if the reading of the Momentum indicator is above zero, the price is moving upward. On the flip side, if the reading of the momentum indicator is below zero, basically the price is moving downward!!
You will resolve to an uptrend if you spot the following;
- The price chart is growing upward.
- The Momentum indicator signal line has crossed the zero mark from below upwards and continues to rise.
After careful and thorough scrutiny by the use of other analytical tools confirming an uptrend, then you better enter a Buy position!!
Alternatively, resolve to a downtrend if you spot the following;
- The price chart is showing a fall in price.
- The Momentum indicator signal line has crossed the zero mark from above downwards and continues to fall.
Utilize other chart analysis tools to confirm the signals you are receiving from the Momentum Indicator for accuracy and authenticity.
If they confirm a downtrend, then you will do well to enter a Sell position!!
The momentum Indicator is widely used by many Iq Option traders in their trading strategies for profitable trading.
This is because it does not lag but shows the rate of price change in real-time!!
Include it in your trading strategy on Iq Option and win Big!!
Remember to utilize other tools in your strategy for confirmation of signals.
Apply risk management too. You do not want to blow your account, do you?
That is it all about the Momentum Indicator!! Happy trading!!