The Momentum indicator seeks to predict future trends on recent price and volume action. It is currently one of the most widely used technical studies because it is easy to calculate and it can be applied in a number of different ways.
The formula for the Momentum indicator is:
The Momentum indicator is a lower technical study. ProSticks uses a default parameter value of 10 bars to calculate the MTM. Signal lines are also available with ProSticks. ProSticks uses default parameters of 3 bars for both.
MTM is an oscillator-type indicator used to detect overbought and oversold conditions and to perform as a gauge indicating the strength of the current trend. Momentum calculations are either positive or negative and fluctuate around a zero-line.
When MTM is above the zero-line and rising, prices are increasing at an increasing rate. If MTM is above the zero line but is declining, prices are still increasing but at a decreasing rate.
On the other hand, when MTM is below the zero-line and falling, prices are decreasing at an increasing rate. If MTM is below the zero line but is rising, prices are still declining but at a decreasing rate.
With the momentum indicator, traders usually enter the market when the momentum crosses over the zero-line from negative territory and exit the market when the momentum crosses over the zero-line from positive territory.