Momentum
Introduction
Section titled “Introduction”The Momentum Technical Indicator measures the amount that a security’s price has changed over a given time span.
Using the Momentum Indicator
Section titled “Using the Momentum Indicator”There are basically two ways to use the Momentum indicator:
Divergence at Market Peaks and Bottoms
Section titled “Divergence at Market Peaks and Bottoms”As a market peaks, the Momentum indicator will climb sharply and then fall off – diverging from the continued upward or sideways movement of the price. Similarly, at a market bottom, Momentum will drop sharply and then begin to climb well ahead of prices. Both of these situations result in divergences between the indicator and prices.
Calculation of Momentum
Section titled “Calculation of Momentum”Momentum is calculated as a ratio of today’s price to the price several (N) periods ago.