How are momentum indicators used to confirm a trend

Momentum indicators are lagging indicators. They are good at spotting trends once they are formed.

Though always save traders from most fake out, these indicators give signals when the trend has already started as a result you are likely to miss out on good entry opportunities. So you make late entries.

You are saved from many fake out signals at an expense of late entry or missing out catch trades with high volatile movements. What would you prefer?   A late entry on a well established trend or making early entries which turn out to be fake outs?

The commonly used momentum indicators are, MACD and the Moving averages. That is simple moving average, exponential moving average and weighted moving average indicator.

Let’s look at it using an example.

 

From the above chart, we can clearly see the MACD histogram and signal line crossovers with the zero line corresponding with the moving averages crossovers.  That is a confirmation of a trend direction.

The two indicators are agreeing with each other pointing in the same direction giving us a strong buy signal as the MACD histogram shifts above the zero line and the faster moving average crosses the slower moving average from below. This gives a good signal for a probable change in direction and as the two indicators match, it would be a good opportunity to buy..

Again, when the MACD histogram crosses the zero line to the lower side and at the same time the faster moving averages crosses the slower moving average from above, its an indication that the trend is changing pointing the downside. Taking that in consideration , this would be a strong signal to take a sell position.

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