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Today you are going to learn how to use the Intraday Momentum Index in trading. It is one of the technical indicators that can be helpful when deciding on the best time to open a trading position. So let's see what it is and how you can utilise it.
Key Takeaways🔑
| →The Intraday Momentum Index (IMI) is a technical indicator that helps identify the best time to open a trading position. |
| →IMI combines candlesticks analysis with the Relative Strength Index (RSI) to measure intraday price movements. |
| →Common trading strategies with IMI include oversold/overbought levels, divergences, and breakouts. |
Setting up the IQ Option chart with Intraday Momentum indicator
In order to use any indicator on the IQ Option chart, you must first log in to your account. Consider which financial instrument you are going to trade during the session and then you can attach the indicators needed. To do that, click on the indicators icon on the left side of the platform. For today's strategy purpose, you need to find the ‘Momentum' group of indicators under the Indicators tab. Now you will see the Intraday Momentum Index on the list unfolded on the right side.
The Intraday Momentum Index will appear in a separate window beneath the price chart. As with any other indicator, it comes with default settings. Leave them like this at the beginning. With time, you can play with the settings and observe the difference it makes.
Intraday Momentum Index basics
The Intraday Momentum Index, IMI in short, was invented by Tushar Chande, the market technician. It joins the features of the candlesticks analysis and the Relative Strength Index. See the exemplary chart below where both, the Intraday Momentum Index and the RSI indicator, are attached.
Pros and Cons of Using the Intraday Momentum Index (IMI)👍👎
Pros:
- Helps traders identify short-term trading opportunities. 💹
- Combines candlestick analysis with RSI, providing a more comprehensive view of the market. 🔍
- Can be used to detect oversold or overbought levels, divergences, and breakouts. 📊
Cons:
- Not as effective for long-term trading strategies. 📉
- May generate false signals in volatile markets. ❌
- Best used in conjunction with other technical indicators for confirmation. 🧩
| Trading Strategy | Description |
|---|---|
| Oversold Overbought Levels | Using the IMI to identify when an asset is oversold (IMI < 30) or over |
| Divergences | Detecting when the IMI and price action are moving in opposite directions, indicating a potential trend reversal. Bullish divergences occur when IMI rises while the price decreases, while bearish divergences occur when IMI falls as the price rises. 📈📉 |
| Breakouts | Identifying when the IMI line breaks a trendline, indicating a change in trend direction. 🚀 |
How do you calculate Intraday Momentum Index?
The IMI does not concentrate on the differences in open and close price between days but rather measures these differences in the course of a day.
The formula for IMI calculations looks as follows:
IMI = {[∑(d=1)(n)Gains)] / [(∑(d=1)(n)Gains) + (∑(d=1)(n)Losses)]} × 100
Gains are closing price (CP) minus opening price (OP) on Up Days. Up day is when the Close is above the Open.
Losses are OP – CP on Down Days, which are when the Close is lower than the Open.
d stands for Days and n for a number of days (typically 14).
So the Intraday Momentum is determined by the sum of gains upon up days divided by the sum of gains during up days plus the sum of losses upon down days, and next multiplied by 100.
It can be used to identify the oversold and overbought levels. When the result of calculations is lower than 30, the asset is considered to be oversold. When the IMI rises above 70, it means the asset is being overbought.
Trading with the Intraday Momentum Index
There are a few ideas for creating an intraday momentum strategy. First of all, you can trade using information about the oversold and overbought areas.
Traders can notice divergences with the IMI. It happens when the indicator and the price action do not go in the same direction. Below you will find an exemplary chart attached with a bearish divergence. The Intraday Momentum Index falls while the price goes up.
The bullish divergence occurs when the indicator rises while the price decreases.
Divergences indicate that a reversal of the trend is coming.
Another strategy used while trading with the IMI is the breakout strategy. Draw a trendline and you will see how the indicator line moves in a particular range. Then, it breaks the trendline and the trend changes its direction.
There are also other ways of using the IMI in trading, however, the above three are the most popular.
Summary
The Intraday Momentum combines candlesticks analysis with the relative strength index. It looks at the relationship between an asset's opening and closing price over the course of a day. Its range is from 0 to 100. It shows when the security is oversold or overbought. You can determine the entry points for your trades with it. It is more useful for short-term traders.
You can also combine the IMI with another form of technical analysis to confirm the signals received. Some traders use, for example, breakout chart patterns.
Go to the IQ Option demo account to check all three ways of using the Intraday Momentum indicator. Do you have any experience in trading with the indicator described today? How do you tend to use it? Share your views with us in the comments section below.
Good luck!
Q&A: Intraday Momentum Index (IMI)❓
- Q: How does the Intraday Momentum Index (IMI) differ from the Relative Strength Index (RSI)?
- A: While both IMI and RSI are momentum-based indicators, the IMI focuses on intraday price movements, while RSI measures the changes in closing prices between days.
- Q: Can the Intraday Momentum Index (IMI) be used for long-term trading?
- A: The IMI is primarily designed for short-term trading. While it may provide some insight for long-term traders, it is generally more effective for intraday strategies.
- Q: What are the common pitfalls when using the IMI in trading?
- A: Some common pitfalls include relying solely on the IMI for trading decisions, not using other technical indicators for confirmation, and misinterpreting false signals in volatile markets.
- Q: How can traders minimize false signals generated by the IMI?
- A: Traders can minimize false signals by combining the IMI with other technical indicators or chart patterns, helping to confirm the signals received.
- Q: Can the Intraday Momentum Index (IMI) be applied to all asset types?
- A: Yes, the IMI can be applied to various asset types, such as stocks, commodities, and currencies, as long as there is sufficient intraday price data available.