Filtered Momentum Indicator (FMI)

The Filtered Momentum Indicator (FMI) tool assists traders in identifying momentum shifts and potential trend reversals by calculating the relationship between raw momentum values and Bollinger Bands.

Usage

The FMI can be used to gauge the strength of bullish and bearish trends through two primary lines: F+ (Filtered Plus) and F- (Filtered Minus).

• Bullish Bias: When F- (the difference between momentum and the lower Bollinger Band) is significantly greater than F+, the indicator suggests rising bullish momentum. The background and bars turn green.
• Bearish Bias: When F+ (the difference between the upper Bollinger Band and momentum) is significantly greater than F-, it suggests increasing bearish momentum. The background and bars turn red.
• Reversal Identification: Traders often look for crossovers between the F+ and F- lines as early warnings of momentum exhaustion or trend shifts.
• Confirmation: Signals are generated when one line exceeds the other by a user-defined multiplier and crosses a specific threshold, filtering out minor fluctuations in choppy markets.

Details

The script operates by first calculating momentum as a percentage of price change over a specific period. It then applies Bollinger Bands to this momentum value rather than the price itself. By measuring the distance between the momentum and its volatility bands, the indicator creates a "filtered" view:

• F+: Measured as Upper Band - Momentum. Higher values indicate momentum is pushing toward the lower band (bearish).
• F-: Measured as Momentum - Lower Band. Higher values indicate momentum is pushing toward the upper band (bullish).

This approach highlights when momentum is overextended relative to its recent historical volatility.

Settings

Main Settings

• Momentum Period: The lookback period used to calculate the percentage-based momentum.
• Bollinger Bands Period: The SMA length used for the basis of the volatility bands.
• Bollinger Bands Deviations: The number of standard deviations for the upper and lower bands.
• Signal Comparison Multiplier: The factor by which one line must exceed the other to trigger a bullish or bearish signal (e.g., F- must be 2x greater than F+).
• Signal Value Threshold: The minimum absolute value required for a line to trigger a signal, preventing alerts during low-volatility periods.

FAQ

How do I interpret the F+ and F- lines?

The F- line represents bullish strength (colored green), while the F+ line represents bearish strength (colored red). When the green line is on top, the market has bullish momentum; when the red line is on top, it has bearish momentum.

What causes the background color to change?

The background changes color when the momentum strength meets both the "Signal Comparison Multiplier" and the "Signal Value Threshold" defined in the settings, indicating a confirmed momentum state.

How can I access the Filtered Momentum Indicator (FMI)?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.