This indicator displays the direction of a trend as it calculates how rapid the price changes. This is possible as it utilizes the present and previous price as variables for comparison.
HOW TO USE MOMENTUM INDICATOR
The momentum indicator is a line that oscillates around 100. As this is an oscillator, it is necessary to use this when analyzing the price trends.
CROSSING THE X-AXIS:
Once the indicator soars above 100 while the market is an uptrend, it denotes a bullish signal.
If the indicator plummets down under 100 during a downtrend, it is considered as a bearish signal.
FALLING OUT OF ITS NORMAL RANGE
Extreme points indicate that the price is at its peak of gaining or losing within a specific period as it also supports trend stability. Concerning this, if the price is rushing, this acknowledges possible overbought and oversold areas.
Investor sentiment is low just when the price reaches a relatively new high without the indicator doing the same. The same principle can be applied when the price reaches a new low without the indicator, and it denotes that a trend may come into conclusion.
To compute, MOMENTUM = (CURRENT CLOSE PRICE / LAGGED CLOSE PRICE) X 100
Graphic illustration from: https://www.ifcmarkets.com/en/ntx-indicators/momentum