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 represents the rate of change of the price over the particular timeframe 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
Technical Analysis and How to Generate Trading Signals
This indicator is used to generate technical buy and sell signals. The 3 most common techniques of generating signals used in indices are:
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 is used as an overbought/oversold indicator, to identify potential over-bought and oversold 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 values 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 and troughs. Momentum begins to turn before trading price therefore making it a leading indicator.
- 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.
Technical Analysis in Indices Trade
Get More Topics and Guides:
- How Can I Find WallStreet30 in MT5 iPhone Trade App?
- How Can I Find MetaTrader 4 NKY 225 Stock Index Chart?
- Aroon Stock Index Indicator Analysis on Stock Index Charts
- NETH 25 Strategies
- How Do I Avoid Losing Money in Stock Index
- How Do I Trade Index in MetaTrader 4 iPhone Mobile App
- Stock Index How Do I Identify a Bull Flag Stock Index Pattern on Stock Index Trade?
