What is Momentum?

Momentum is an indicator that is used to determine the level of price change over a given period. It is one of the indicators of technical analysis, which indicates the currently prevailing trend, and allows investors to decide on their next investments. It is also considered an indicator of overbought and oversold in the market.

 

What decisions can be made after knowing the Momentum indicator?

Momentum is an indicator that tells you whether to open a short or long position, and also allows you to set the level for stop loss and take profit orders.

Can Momentum be used as a standalone indicator?

For a professional trader, it may not give enough signs to make decisions about operations. However, it is good as a helpful indicator. On the other hand, for beginners who have not yet mastered many indicators, it can be a good basis for decision-making. It is calculated very simply, just subtract the closing price from before a selected number of periods, from the current closing price.

Are there any indicators similar to Momentum?

The ROC is considered very similar, as it also shows the strength of the price change, but momentum is an indicator that shows the change as a coefficient, while in the ROC we see the result in percent.

How to interpret the Momentum indicator?

The indicator is interpreted simply because it follows prevailing trends. A buy signal for investors will be when the indicator is in the oversold region of the market and already starting to rise, while when the indicator is in the overbought region and heading down, it means to sell.

Are there any exceptions to the Momentum interpretation?

There are two exceptions to the above rule, which can be read by past indications and reaching a minimum or maximum. If the indicator is falling and reaches a minimum, and then rebounds and begins to rise, the trend can be expected to continue to decline, and the situation is reversed when the indicator rises and reaches a maximum. In such cases, buy or sell signals will only be clear when they are confirmed by the movement of the price chart.