Filtered Momentum Indicator (FMI)

30 Jun 2023

The Filtered Momentum Indicator (FMI) is a tool created to assist traders in identifying changes in momentum and gaining insights into potential shifts in price trends. By combining the concepts of momentum and Bollinger Bands, the FMI offers a unique perspective on momentum values and their relationship to price movements, helping traders make informed trading decisions. The FMI is calculated using two main components:

-- Momentum Calculation: Momentum measures the strength and velocity of price changes. It is calculated by comparing the current price to the price 14 (default) periods ago and expressing it as a percentage.

-- Bollinger Bands Calculation: Bollinger Bands are based on the momentum values and provide a range within which the momentum is expected to fluctuate. The upper and lower bands are determined using a specified period (default of 20) and deviations (default of 2.0).

The FMI consists of two lines: F+ (Filtered Plus) and F- (Filtered Minus). These lines help gauge the strength of bullish and bearish momentum:

-- F+ represents the difference between the upper Bollinger Band and the momentum values. It indicates the strength of bullish momentum. F+ is colored aqua.

-- F- represents the difference between the momentum values and the lower Bollinger Band. It indicates the strength of bearish momentum. F- is colored yellow.

When analyzing the FMI, pay attention to the relationship between F+ and F-:

-- If F- is greater than F+, it suggests potential bullish momentum, indicating that prices may have room to rise.

-- If F+ is greater than F-, it suggests potential bearish momentum, indicating that prices may have room to decline.

Coloration of the FMI enhances its interpretability - when F- is greater than F+, the indicator color is set to lime (green), signaling potential bullish momentum; when F+ is greater than F-, the indicator color is set to fuchsia (purple), signaling potential bearish momentum.

The FMI can be applied in various ways for trading strategies:

-- Identifying Potential Reversals: Watch for crossovers between the F- and F+ lines, as they may indicate a potential shift in momentum and offer opportunities to enter or exit trades.

-- Confirmation Tool: Combine the FMI with other technical indicators or price patterns to validate potential trend reversals or continuations. By aligning signals from different indicators, you can strengthen your trading decisions.

-- Trade Timing: Consider taking trades in the direction of the dominant FMI color. When the indicator shows strong bullish momentum (F- > F+), consider going long. Conversely, when it shows strong bearish momentum (F+ > F-), consider going short.

It is essential to be aware of the limitations of the FMI:

-- False Signals: The FMI, like any indicator, may generate false signals, especially during low volatility or choppy market conditions. Always use the FMI in conjunction with other analysis techniques for confirmation.

-- Lagging Nature: The FMI relies on historical price data, causing it to lag behind sudden market moves. Keep in mind that the FMI provides insights based on past momentum and may not capture immediate changes in market conditions.

By combining momentum and Bollinger Bands, this indicator provides a unique perspective for making informed trading decisions. Utilize the FMI in conjunction with other analysis techniques, considering its limitations, to enhance your trading strategy and improve decision-making.

1 Jul 2023

Catatan Rilis

Included additional calculations for filtering bullish and bearish signals:
-- Signal Comparison Multiplier -- To generate bull/bear signals, the F- or F+ must be greater than or equal to [this multiplier] times the value of the opposite line.
-- Signal Value Threshold -- F+ or F- must be above this threshold to generate a bull/bear signal.

These calculations are reflected in the background and bar colorations. If F- is greater than or equal to [multiplier] times F+ AND above the signal value threshold, bar and background colors are lime. If F+ is greater than or equal to [multipler] times F- AND above the signal value threshold, bar and background colors are fuchsia. If these conditions aren't met, the color is set to yellow.