Momentum

The Momentum price study measures the rate of price change by subtracting the current price close from a closing price in the past. The indicator is drawn as a single line that moves around an anchor point known as the "Zero Line". The most common value used for Momentum is 10 periods. When the Momentum Indicator is used with shorter periods, there is a higher chance of whipsaw. While there are more trade signals with shorter periods, they tend to be less reliable than larger period signals.

The Momentum Indicator will often form a range of its own. In terms of defining overbought or oversold conditions, there are no fixed levels as with other momentum studies. Traders need to look back to the upper and lower boundaries of Momentums readings to gauge the extremeness of any particular move. When the rate of price change reaches a prior extreme, the trader should become cautious of further price advance/decline. Looking at the chart below, the current advance has not reached a Momentum reading greater than +.02. Should the trend continue and Momentum re-approach +.02, the trader should consider protecting long positions.


Momentum