Momentum indicators aim to measure and show market momentum. What is market momentum? In simple terms, it’s the measure of the speed of price changes. Momentum indicators aim to measure the rate at which prices rise or fall. As such, they’re typically used for short-term analysis by traders who are looking to profit from bursts of high volatility.
The goal of a momentum trader is to enter trades when momentum is high, and exit when market momentum starts to fade. Typically, if volatility is low, the price tends to squeeze into a small range. As the tension builds up, the price often makes a big impulse move, eventually breaking out of the range. This is when momentum traders thrive.
After the move has concluded and the traders have exited their position, they move on to another asset with high momentum and try to repeat the same game plan. As such, momentum indicators are widely used by day traders, scalpers, and short-term traders who are looking for quick trading opportunities.