The momentum modulator indicator is a histogram-style technical indicator that shows uptrends and downtrends in a market. The transitions from uptrend to downtrend and downtrend to uptrend are considered entry signals.
What is the Momentum Modulator Indicator?
The momentum modulator indicator is a histogram that shows the momentum of price in the market. This custom MetaTrader indicator, by default, displays blue positive bars in an uptrend and red negative bars in a downtrend. Generally speaking, when the histogram goes from negative red bars to positive blue bars, it is a buy signal. When the histogram goes from positive blue bars to negative red bars, it is a sell signal.
How to Trade with the Momentum Modulator Indicator
The momentum modulator indicator is often combined with other signals that confirm the uptrend. For example, the RSI (Relative Strength Index) suggesting a market is overbought (over 70%) is a signal that you would use to anticipate a possible downtrend. You would then wait for the positive blue bars to turn into negative red bars. Once the first negative red bar closes, you would enter the short trade. You can close the position when the negative red bars turn back to positive blue, or when the RSI reaches below 30%.
Bearish and bullish divergences can also be identified using the momentum modulator indicator. When the price has increased, but the momentum has not, it represents a bearish divergence between momentum and price. This imbalance is a sign that the increase in price is not as significant as it seems and is bound to reverse.
Momentum indicator on MT4
How Does the Momentum Modulator Indicator Compare with Similar Indicators?
The histogram drawn by the momentum modulator is different from that drawn by the MACD. The MACD uses exponential moving averages which lag behind the momentum modulator indicator. This means that the momentum modulator indicator signals uptrends and downtrends sooner than the MACD. That does not necessarily mean that it is better, but it does seem to provide more opportunities to justify trades than the MACD.
Comparing the momentum modulator indicator with the Parabolic SAR yields similar results. Many uptrends that the momentum modulator indicator detects also correspond to uptrends that the Parabolic SAR identifies. However, the Parabolic SAR identifies some downtrends that the momentum modulator indicator identifies as continuations of the larger uptrend. Of course, these two indicators are being compared with the default parameters, so they could be adjusted to yield fairly similar results.
The momentum modulator indicator is a histogram that shows uptrends and downtrends in a market. The transition between negative red bars to positive blue bars represent a buy signal, while the transition from positive blue bars to negative red bars generates a sell signal. The momentum modulator indicator yields different uptrend and downtrend signals from the MACD or the Parabolic SAR, so it can be useful for getting a different opinion on what an uptrend or downtrend actually is in a market.
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