The momentum indicator takes the latest closing price and compares it to the previous closing price. This is then displayed as a single line, usually on a single chart below the main chart.
The indicator moves to the centerline with the value 100 and moves away from this value again. The distance length of the indicator above or below 100 indicates how fast the course changes. For example, if the value were 102, it means that the market moves up faster than it does 101. In contrast, a value of 98 points to a stronger downtrend like a value of 99.
Momentum indicators can be a useful tool for identifying signals that indicate whether the market is overbought or oversold. Forex traders can use these indicators to gauge the strength of price movement in the market and determine if the price will go up or down.
It is important that the market has included the momentum indicator on previous occasions and set out the exact terms that seem to work.