FOREX Momentum Analysis

Like the RSI, momentum measures the rate of change in trends over a given period. Unlike the RSI, which measures all the rate changes and fluctuations within a given period, momentum allows you to analyze only the rate variations between the start and end of the period studied.

The larger n is, the more the daily fluctuations tend to disappear. When momentum is above zero or its curve is rising, it indicates an uptrend.

A signal to buy is given as soon as the momentum exceeds zero, and when it drops below zero, triggers the signal to sell.

Momentum = price on day (X) - price on day (X-n)
where n = number of days in the period studied.
The following example in Table below of momentum analysis uses the EUR/USD currency pair as the underlying security.

Calculating Momentum

1/01/108,894
1/02/109,037
1/03/108,985
1/04/108,944
1/07/108,935
1/08/108,935
1/09/108,914
1/10/108,914
1/11/108,925
1/14/108,943+49
1/15/108,828-209
1/16/108,821-164
1/17/108,814-130
1/18/108,846-99
1/21/108,836-99
1/22/108,860-54
1/23/108,783-131
1/24/108,782-143
1/25/108,650-293
1/28/108,623-205
1/29/108,656-165
1/30/108,610-204
1/31/108,584-262


Examination of the nine-day momentum shows a clear downward trend. Momentum analysis should not be used as the sole criterion for market entry and exit timing, but in conjunction with other indicators and chart signals.
By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2016. Content published with author's permission.

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