Introduction: The MoMo is a TradingView indicator designed to evaluate momentum and give the user signals according to momentum shifts, strength, extensions, traps, and divergence. It’s an all in one oscillator that will make reading price action near term and long term much easier.
Part One: Strength
The MoMo consist of two major parts. A 3-candle back formula and a 24-candle back formula. The 3-candle back is called the Price Line (the histogram on the MoMo). The 24-candle back is called the (the line on the MoMo). Both lines are placed into a range from 20 to -20. It can go higher than 20 or lower than -20, but this is extremely rare and short lived.
A positive number indicates a bias, a negative number indicates a bias. When the Price or are ascending while below 0 this indicates that the momentum is weakening. When the Price or are descending while above 0 this indicates that the momentum is weakening.
In a strong trend the will likely flatten out around 15 or -15. While the is flat the Price Line will likely shift rapidly, this can lead to bull and bear traps, we will discuss this in the Trap section.
A rare, but powerful signal from the MoMo is when the Price and “pinch” and begin to move in the same direction. If this is happening the trader should be looking to follow the direction of these lines.
Part Two: Extensions
When both Price and are above 10 or below -10 this will begin to signal an extension.
Purple: Indicates the bears are extended to the downside and a pullback or trend reversal upward is likely.
Gold: Indicates the bulls are extended to the upside and a pullback or trend reversal downward is likely.
When only the is above 10 the MoMo will shade the upper range red. This indicates the Trend is becoming or entering an extension. If the cannot maintain above 10 for long and breaks below 10 this indicates it’s an extension and trend will most likely continue downward.
When only the is below -10 the MoMo will shade the upper range green. This indicates the Trend is becoming or entering an extension. If the cannot maintain below -10 for long and breaks above -10 this indicates it’s an extension and trend will most likely continue upward.
When the green or purple shading have turned off take the lowest point, this is considered a or a local bottom.
When the red or gold shading have turned off take the highest point, this is considered a or a local top.
The trader can preemptively trade the purple or gold warnings but be warned these warnings can go on for a long time if the trend is very strong. It is the same mentality of an overbought or oversold , except the MoMo extensions have a much higher strike rate.
To avoid preemptively trading these extensions the trader should wait for confirmation on the Price Line and on price action. The Price Line (histogram) should be moving upward during a purple extension to begin showing a bottom. The Price Line (histogram) should be moving downward during the gold extension to begin showing a top.
Part Three: Traps
The relation between the Price Line and can create trading signals for bull and bear traps. When the is flattened out around 15 or -15, indicating a strong trend is in place, and the Price Line is rapidly moving towards the midline this may indicate a trap is forming.
When the is flat around 15 and the Price Line begins moving towards 0, if the Price Line reaches 0 or close to 0 and the is still flat, a trap has begone. Once the Price Line shifts from decreasing (red) to increasing (green) the trap is playing out. Therefore, the trader should look to exit short positions or enter long positions.
When the is flat around -15 and the Price Line begins moving towards 0, if the Price Line reaches 0 or close to 0 and the is still flat, a trap has begone. Once the Price Line shifts from increasing (green) to decreasing (red) the trap is playing out. Therefore, the trader should look to exit long positions or enter short positions.
Part Four: Divergences
The MoMo is exceptional at finding divergences with the Price Line and occasionally the .
To find a divergence with the MoMo the trader must look for when the histogram is not following price action completely.
Divergence: Price makes a lower low, MoMo makes a higher low.
Divergence: Price makes a higher high, MoMo makes a lower high.
Hidden Bull Divergence: Price makes a higher low, MoMo makes a lower low.
Hidden Bear Divergence: Price makes a lower high, MoMo makes a higher high.
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