Momentum (MTM) is a simple momentum oscillator indicator, similar to Rate of Change (RoC). Like RoC, the Momentum oscillator indicator (MTM) measures the rate of an ongoing trend, whether accelerating or slowing.
This is done by comparing the latest closing price with the closing price of a certain period in the past. Thus, the 7 day MTM indicator compares the last close price with the close price of seven days ago. Like RoC, MTM indicators are very sensitive to price changes and tend to be erratic.
Momentum (MTM) is only calculated by subtracting the close price of a certain period previously from the last close price by using the formula:
Momentum = Last close – Close certain period
where the specified period is the previous close price determined by the trader. The result is plotted as an unbound oscillator that oscillates above and below the midline, ie the zero line.
The main consideration when using MTM is the midline. When the underlying pair price is in an uptrend, the buy signal is generated when the Momentum oscillator moves below the midline and starts moving upwards. When the underlying pair price is in a downward trend, a sell signal is generated when the Momentum oscillator moves above the midline and starts moving downwards.
An entry signal is also generated when the trend line drawn on the Momentum oscillator is violated.