Trade Stock Indices

Momentum Technical Analysis & Momentum Oscillator Indicator Signals

The momentum indicator uses math equations to calculate line of plotting. Momentum estimates the velocity with which the price changes. This is calculated as the difference between the ruling stock price candle and the average trading price of a chosen number of price candlesticks ago.

Momentum shows how fast the price is changing over a certain amount of time. The quicker that prices go up, the bigger the increase in momentum. The quicker that prices go down, the bigger the decrease in momentum.

As price movement slows, momentum slows too. It heads back to a middle area.

Momentum - Momentum Analysis

Momentum

Technical Analysis and How to Generate Trading Signals

This indicator creates buy and sell signals. The three main ways to generate them in indices are listed.

Zero Centerline Trading Cross Overs Stock Signals:

  • A buy trade signal is derived/generated when the Momentum crosses above zero mark
  • A sell signal is generated when the Momentum crosses below zero mark

Over-bought/Oversold Levels:

Momentum can show when something is overbought or oversold, and it helps find possible levels where this might happen based on past data: past high or low momentum shows overbought and oversold levels.

  • Readings above the overbought level mean indices is overbought and a price correction is pending
  • While values below the oversold level the price is oversold & a price rally is pending.

Trend Line Break Outs:

Connect peaks and troughs on the Momentum indicator with trend lines. It leads price changes by shifting first.

  • Bullish reversal - Momentum readings breaking above a downward trendline warns of a possible bullish market reversal signal setup while
  • Bearish reversal - momentum values breaking below an upwards trendline warns of a possible bearish reversal.

Momentum - Momentum Analysis - Best Indicator Combination

Technical Analysis in Indices Trade

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