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How to use the Intraday Momentum Index on IQ Option


Intraday Momentum Index on IQ OptionToday 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.

Setting up the IQ Option chart

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.

How to insert Intraday Momentum Index on IQ Option
How to insert Intraday Momentum Index on IQ Option

The Intraday Momentum Index will appear in the 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, are attached.

Comparison of IMI(20) with RSI(20)
Comparison of the IMI(20) with the RSI(20)

The IMI formula

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 Index 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.

Overbought and oversold areas on Intraday Momentum Index
Overbought and oversold areas on the Intraday Momentum Index

Trading with the Intraday Momentum Index

You can trade using information about the oversold and overbought areas.

Price can stay quite long time in overbought/oversold area
Price can stay quite a long time in overbought/oversold area

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.

Bearish divergence on IMI
Bearish divergence on the IMI

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.

You can use trendlines in IMI indicator window
You can use trendlines in the IMI indicator window

There are also other ways of using the IMI in trading, however, the above three are the most popular.

Summary

The Intraday Momentum Index 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 Index. 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!

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