Measure Trend Strength with the Momentum Indicator

The Momentum indicator is both easy to set up and versatile to use. By measuring the amount that a security’s price has changed over a given period of time, it indicates a market’s velocity and is helpful in spotting likely reversal points. It charts as an easy-to-read oscillator below the price data of a chart. Similar to a moving average, the Momentum line offers just one parameter to adjust its sensitivity to price action.

See how easy it is to get started with the Momentum indicator in this quick video:

Adding the Momentum Indicator to your Charts

There are 2 components to the Momentum indicator: the momentum line itself, and a zero line. Traders look at the momentum line in relation to the zero line to determine positive or negative momentum.

To add the Momentum indicator to a chart on the NinjaTrader platform:

1. Right click and select “indicators”.
2. Locate “Momentum” from the top left list.
3. Double click on it, or use the “add” button below.
4. Set the preferred “Period” value and click OK.

Reading and Tweaking the Momentum Line

When price moves quickly, the Momentum line reacts by plotting further from the zero line. When price is not trending heavily, the Momentum line retreats around zero. This makes the Momentum oscillator incredibly easy to read, and easy to tweak to your preference.

Using a higher period value will cause the Momentum line to react slower, which can help weed out false signals. Using a higher period value will cause the indicator to react faster, which can potentially help in spotting trend reversals or trend exhaustion as soon as possible. The period value you choose for the momentum indicator will vary widely based on the market you are watching, and the time frame of the chart. Before using the Momentum indicator in your trading, watch it on a few different markets, and try tweaking the period value to suit your needs. Remember that the Momentum indicator is considered a lagging indicator and is not predictive.

Applying the Momentum Indicator to your Trading

Many traders see a decrease in momentum as trend exhaustion. This can help you plan your trade exits when it looks like a trend may have run its course. On the contrary, when the Momentum indicator starts to move away from zero, it could indicate that a market is about to move more, providing some trade entry insights. Some traders look at momentum and price action convergence/divergence as signals in their trading. NinjaTrader offers a variety of tools for analyzing historical data and simulated trading to get familiar with momentum analysis.

Trend exhaustion is easy to spot when the momentum line quickly dips back to the zero line.

Conditions are ripe for trend reversals when momentum darts toward the zero line, then breaks strongly to the other direction. If the momentum continues strongly positive, this could be a reversal signal.

In addition, it is always a good idea to use multiple complimentary tools to measure the market, so when trying out the Momentum indicator, be sure to pair it with moving averages, volume analysis, and classic tools like trend channels or Fibonacci retracements.

Get Started with NinjaTrader

NinjaTrader supports more than 500,000 traders worldwide with a powerful and user-friendly trading platform, discount futures brokerage and world-class support. NinjaTrader is always free to use for advanced charting & strategy backtesting through an immersive trading simulator.

Download NinjaTrader’s award-winning trading platform and get started with a free trading demo with real-time market data today!