Momentum

Momentum is a rate-of-change indicator that measures the speed of price movement by comparing the current price to the price N periods ago. Positive values indicate upward momentum while negative values indicate downward momentum. The magnitude shows how fast the price is changing.

How Momentum Is Used in Trading

The zero-line crossover is the primary signal. When momentum crosses above zero, the current price is higher than the price N periods ago, indicating positive momentum and a potential long entry. The reverse signals potential short entries. The steepness of the crossover indicates signal strength.

Momentum divergence is a powerful leading indicator. When price makes new highs but momentum fails to confirm, it suggests the uptrend is losing steam. This divergence often appears one to three candles before the actual price reversal, giving traders an early warning.

In algorithmic trading, momentum is often used as a filter rather than a standalone signal. A momentum reading above zero confirms that other buy signals are aligned with the broader direction. This simple filter can significantly reduce false signals from oscillator-based strategies.

Access via API