Momentum – an indicator of technical analysis. In the context of comparing current and original data, this indicator indicates the direction of the trend and determines the speed of price changes.
How to use Momentum Indicators
This indicator has a line under it, which fluctuates around the 100 level. Each new data depends on the current price and the value of previous periods (usually 10-14 periods). Momentum indicators and general analysis of trends need to be used together.
Under the conditions of two events, it is necessary to pay attention to the indicator data:
1-Cross 100 levels. In the context of an uptrend, if the indicator fluctuates above the 100 level, this is a buy signal. Fluctuations below the 100 level – a sell signal.
2-Break through the range of indicator fluctuations. Indicators reaching very high or very low levels demonstrate the strength of the trend. However, the data may also demonstrate overbought/oversold characteristics.
3-Indicator fluctuations and price differences. The price reaches a new high and the indicator shows a downward trend – a sign that the upward trend in the price is weakening. In addition, the price reached a new low and the indicator failed to confirm the decline – a sign that the downward trend is about to reverse.
Momentum indicator – calculation formula
Momentum indicator = (current closing price / closing price of previous periods) x 100