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Top Momentum Indicators To Analyse Trend Strength

Identifying strong market trends is necessary to profit in the forex market. Momentum indicators help traders measure a market trend’s strength and find the right entry and exit price levels. In this article, we take a look at the top momentum indicators that can easily analyse trend strength.

What is a momentum indicator?

Momentum indicators are technical analysis tools that determine in which direction the market is headed and how strong or weak the ongoing trend is.They measure the speed at which currency pair prices change by comparing the current and historical prices.

Top momentum indicators every trader should know

1. Relative Strength Index

Relative Strength Index (RSI) is a strong momentum indicator that measures a currency pair's current and historical market strength to analyse the overbought or oversold market conditions. The RSI results are plotted on a range between 0 to 100. When the RSI reading is below 30, it indicates an oversold market, and when the readings are over 70, it indicates an overbought market condition.

  • Traders receive an exit signal when the markets are overbought as RSI indicates a potential market downtrend reversal
  • Traders receive an entry signal when the markets are oversold as RSI indicates a potential market uptrend reversal
Top momentum indicators graphic

2. Average Directional Index

Average Directional Index (ADX) is a technical indicator that measures the currency pair price movement in a particular trend direction (upwards or downwards) to determine the ongoing trend’s strength. The ADX is plotted between values of 0 to 100, where any reading above 25 indicates a strong trend in the market.

  • During a downtrend, when the ADX reading is above 25, it signals traders to exit the market due to the continued downtrend presence
  • During an uptrend, when the ADX reading is above 25, it signals traders to enter the market due to the continued uptrend presence

3. Stochastic Oscillator

The Stochastic Oscillator is a momentum indicator that uses support and resistance levels to identify oversold or overbought market conditions. It compares the current closing prices of a currency pair over a period of time to understand the ongoing market trend. The indicator provides traders with values ranging from 0 to 100.

  • When the indicator gives a reading over 80, the currency pair prices break above the resistance level and the market is considered overbought. This signals traders to exit the trade due to an expected downtrend.
  • When the indicator gives a reading below 20, the currency pair price breaks below the support level, and the market is considered oversold. This signals traders to enter the trade due to an expected uptrend.
Top momentum indicators graphic

4. Moving Averages

Moving Average is a technical indicator that identifies a market trend’s direction and strength by taking the average of currency pair prices over a specific period of time.

  • When the current currency pair price is more than the average price in an uptrend, it signals a continued strong uptrend and provides traders with ideal entry levels
  • When the currency pair price is less than the average price in a downtrend, it signals a strong continued downtrend and provides traders with ideal exit levels

When a currency pair price is on either side of the Moving Average (above or below), the farther it is, the stronger the ongoing trend is considered to be. This is because –

  • When there is an uptrend, prices away (and above) from the average price confirm that the market is not trading within a range and is following an uptrend
  • When there is a downtrend, prices away (and below) from the average price confirm that the market is not trading within a range and is following a downtrend
Top momentum indicators graphic

5. Moving Average Convergence Divergence

The Moving Average Convergence Divergence (MACD) is an indicator that depicts the relationship between a slow-moving average (long term) and a fast-moving average (short term). The MACD reveals the ongoing trend’s direction, strength, momentum and duration in a forex market. It consists of a MACD line, which is the difference in the closing prices of the two moving averages and a signal line, which is a 9-period EMA that helps traders with ideal turning points in the market.

  • When the MACD line crosses the signal line from below, traders receive a strong sell signal to exit the market due to an expected downturn
  • When the MACD line crosses the signal line from above, traders receive a strong buy signal to enter the market due to an expected upturn

6. Rate of Change

The Rate of Change (ROC) momentum indicator measures the speed at which the currency pair prices change over a specified period of time. ROC provides a ratio where the change in one variable (currency pair price) relative to the change in another variable (time) indicates the momentum strength of the currency pair.

  • A positive and high ratio indicates a high momentum, signalling traders to enter the market due to an expected continuous uptrend
  • A negative and low ratio indicates a low momentum, signalling traders to exit the market due to an expected continuous downtrend

7. Bollinger Bands

Bollinger Bands are technical analysis tools that are used to measure overbought and oversold market conditions along with market volatility. They consist of two trend lines above and below a simple moving average line (the middle band).

  • The upper band is plotted above the middle band by two standard deviations
  • The lower band is plotted below the middle band by two standard deviations

When the currency pair prices are closer to the upper band, the market is said to be in an overbought condition. On the contrary, when the currency pair prices are closer to the lower band, the market is considered to be oversold. The currency pair prices range between the upper and lower bands.

  • In an overbought market condition, traders receive a sell signal due to an expected downtrend market reversal
  • In an oversold market condition, traders receive a buy signal due to an expected uptrend market reversal
Top momentum indicators graphic

8. Ease of Movement

The Ease of Movement (EOM) indicator indicates the relationship between a currency pair’s price change and its volume in the market. It calculates how easily a currency pair price is able to fluctuate in the market. The EOM values range between positive and negative values in the market, as the EOM line always fluctuates either above or below a zero line.

  • When the EOM line crosses the zero line from below and moves beyond the line, it provides traders with positive values and signals them to enter the trade due to the inclining prices
  • When the EOM line crosses the zero line from above and moves below the line, it provides traders with negative values and signals them to exit the trade due to the declining prices
Top momentum indicators graphic

9. Williams %R

Williams %R indicator provides traders with overbought and oversold market conditions. The indicator gives traders values between 0 to -100 to signal them about the ideal entry or exit price levels. All readings between 0 to -20 signal overbought market conditions, and readings between -80 to -100 signal an oversold market condition.

  • Traders receive a long or buy signal when the Williams %R value drops below the oversold level as it indicates an uptrend reversal
  • Traders receive a short or sell signal when the Williams %R value rises above the overbought level as it indicates a downtrend reversal

10. Coppock Curve

Coppock Curve indicator is a long-term momentum indicator that indicates major upturns and downturns in the forex market in a long time period. It also helps traders identify the beginning of strong bullish or bearish markets by calculating the 10-month weighted moving average considering the sum of the 11-month and 14-month rate of change for the currency pair. It takes a zero line in consideration to signal traders about bullish and bearish markets.

  • When the indicator crosses the zero-line from below, it signals a bullish market and provides traders with ideal entry price levels to long a trade
  • When the indicator crosses the zero line from above, it signals a bearish market and provides traders with ideal exit price levels to short a trade
Top momentum indicators graphic

11. Commodity Channel Index

The Commodity Channel Index (CCI) indicator is a tool that measures the current currency pair price levels to its average price over a specific period of time. This helps traders identify overbought and oversold market conditions and take entry and exit positions accordingly. The CCI is high when the currency pair prices are way above their average price, signalling a continued uptrend, and the CCI is low when the currency pair prices are way below their average price, signalling a continued downtrend. The CCI values range from 100 to -100 and are either above the zero line or below it.

  • When the CCI crosses the zero line from below and moves to the positive range (from 0 to 100), it signals traders to long the trade and provides them with ideal entry price levels
  • When the CCI crosses the zero line from above and moves to the negative range (from 0 to -100), it signals traders to short the trade and provides them with ideal exit price levels
Top momentum indicators graphic

12. Detrended Price Oscillator

Detrended Price Oscillator (DPO) is an indicator that provides traders with overbought and oversold market conditions by comparing the currency pair’s closing prices to its moving average prices. The indicator eliminates the trends that are longer than the moving average cycle so that the overbought and oversold market conditions are not finalised based on the most recent price changes. The DPO uses a zero line to indicate oversold and overbought market conditions. The area above the zero line is the oversold market area, and the area below the zero line is the overbought market area.

  • When the DPO crosses the zero line from below and reaches the area above the zero line, the trades are signalled to long the trade in the oversold market due to an expected uptrend
  • When the DPO crosses the zero line from above and reaches the area below the zero line, the traders are signalled to short the trade in the overbought market due to an expected downtrend
Top momentum indicators graphic

13. TRIX

The TRIX indicator is an oscillator that filters out the irrelevant or unwanted price fluctuations in the short term that do not matter to the larger trend. When the TRIX indicator provides traders with a positive value, it suggests a continued uptrend in the market, and when the TRIX value is negative, it indicates a continued downtrend. It also uses the zero line to indicate ideal buy and sell levels.

  • When the TRIX indicator crosses the zero line from below and closes above the line, it signals traders to enter the trade due to an expected continued uptrend
  • When the TRIX indicator crosses the zero line from above and closes below the line, it signals traders to exit the trade due to an expected continued downtrend
Top momentum indicators graphic

14. Williams Accumulate Distribute

Williams Accumulate Distribute (A/D) indicator uses a currency pair’s price and volume to check when the currency pair is being distributed or accumulated in the forex market. When the currency pair is accumulating in the market, it signifies that the demand pressures are higher than the selling pressures, and when the currency pair is distributing in the market, it signifies that the selling pressures are higher than the demand pressures.

  • If the currency pair prices are falling, but the A/D line is following an uptrend, traders receive a signal to enter the market due to an expected uptrend reversal and higher accumulation
  • If the currency pair prices are rising, but the A/D line is following a downtrend, traders receive a signal to exit the market due to an expected downtrend reversal and higher distribution
Top momentum indicators graphic

Trade with Momentum Indicators today to measure trend strength

Momentum Indicators provide traders with ideal buying and selling levels as per the ongoing market trend and its strength. You can start trading various currency pairs and measure their trend strength on Blueberry Markets. Sign up for a live trading account or try a risk-free demo account.

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