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 bars ago.

Momentum represents the rate of change of the price over the particular time periods. The faster that the prices rises, the larger the increase in momentum. The faster that the prices decline, the larger and greater the decrease in momentum.

As the price movement begins to slowdown the momentum also will begin to slowdown and return to a median zone.

Momentum Indicator - Momentum Indicator Analysis

Momentum

Technical Analysis & How to Generate Signals

This indicator is used to generate technical buy and sell signals. The 3 most common techniques of generating signals used in indices trading are:

Zero Centerline Trading Cross Overs Stock Signals:

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

Over-bought/Oversold Levels:

Momentum is used as an overbought/oversold indicator, to identify potential overbought and over-sold levels based on previous values: the previous high or low of the momentum is used to identify the overbought & over-sold levels.

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

Trend Line Break Outs:

Trend Lines can be drawn on the Momentum trading indicator connecting these peaks & troughs. Momentum begins to turn before trading price therefore making it a leading indicator.

  • Bullish reversal - Momentum readings breaking above a downward trend line 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 Indicator - Momentum Indicator Analysis - Best Indicator Combination

Technical Analysis in Indices Trade

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