Momentum indicators help identify market trends by measuring the speed and strength of price movements. They offer insights into whether a trend is likely to continue, weaken, or reverse. These indicators analyze price data over a specific period and are useful in detecting overbought or oversold conditions.

For instance, the Relative Strength Index (RSI) evaluates recent price changes to determine if a market is overbought (above 70) or oversold (below 30). This helps traders anticipate potential reversals or continuations in a trend. Similarly, the Moving Average Convergence Divergence (MACD) highlights the relationship between two moving averages, with crossovers signalling trend shifts. The MACD histogram further indicates momentum strength.

Momentum indicators like the Stochastic Oscillator compare the closing price to its range over a set period, identifying potential turning points when prices deviate significantly from their recent ranges.

Additionally, the Average Directional Index (ADX) quantifies trend strength without indicating direction, allowing traders to distinguish between trending and non-trending markets.

By providing early warning signals and confirming existing trends, momentum indicators enable traders to make informed decisions, enter trades at optimal points, and avoid false signals. However, they are most effective when used alongside other tools, as they lag behind price movements.