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MOMENTUM

Overview

The Momentum indicator measures the amount that a security's price has changed over a given time span.


Interpretation

The interpretation of the Momentum indicator is identical to the interpretation of the Price ROC. Both indicators display the rate-of-change of a security's price. However, the Price ROC indicator displays the rate-of-change as a percentage whereas the Momentum indicator displays the rate-of-change as a ratio.

There are basically two ways to use the Momentum indicator:

  • You can use the Momentum indicator as a trend-following oscillator similar to the MACD (this is the method I prefer). Buy when the indicator bottoms and turns up and sell when the indicator peaks and turns down. You may want to plot a short-term (e.g., 9-period) moving average of the indicator to determine when it is bottoming or peaking.

    If the Momentum indicator reaches extremely high or low values (relative to its historical values), you should assume a continuation of the current trend. For example, if the Momentum indicator reaches extremely high values and then turns down, you should assume prices will probably go still higher. In either case, only trade after prices confirm the signal generated by the indicator (e.g., if prices peak and turn down, wait for prices to begin to fall before selling).

  • You can also use the Momentum indicator as a leading indicator. This method assumes that market tops are typically identified by a rapid price increase (when everyone expects prices to go higher) and that market bottoms typically end with rapid price declines (when everyone wants to get out). This is often the case, but it is also a broad generalization.

    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.


Example

The following chart shows Integrated Circuits and its 12-day Momentum indicator.

Divergences at points "A" and "B" provided leading indications of the reversals that followed.

 


Momentum Stock Screener Action
 Momentum(3) Bullish Divergence Last 3 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(7) Bullish Divergence Last 7 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(13) Bullish Divergence Last 13 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(26) Bullish Divergence Last 26 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(50) Bullish Divergence Last 50 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(200) Bullish Divergence Last 200 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(3) Bearish Divergence Last 3 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(7) Bearish Divergence Last 7 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(13) Bearish Divergence Last 13 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(26) Bearish Divergence Last 26 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(50) Bearish Divergence Last 50 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(200) Bearish Divergence Last 200 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(3) Trending Up Last 3 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(7) Trending Up Last 7 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(13) Trending Up Last 13 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(26) Trending Up Last 26 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(50) Trending Up Last 50 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(200) Trending Up Last 200 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(3) Trending Down Last 3 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(7) Trending Down Last 7 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(13) Trending Down Last 13 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(26) Trending Down Last 26 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(50) Trending Down Last 50 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(200) Trending Down Last 200 Days   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(3) Reached Its Maximum and Reversed   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(7) Reached Its Maximum and Reversed   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(13) Reached Its Maximum and Reversed   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(26) Reached Its Maximum and Reversed   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(50) Reached Its Maximum and Reversed   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(200) Reached Its Maximum and Reversed   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(3) Reached Its Minimum and Reversed   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(7) Reached Its Minimum and Reversed   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(13) Reached Its Minimum and Reversed   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(26) Reached Its Minimum and Reversed   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(50) Reached Its Minimum and Reversed   Customize Screen   Backtest Screen   Trade Alert  
 Momentum(200) Reached Its Minimum and Reversed   Customize Screen   Backtest Screen   Trade Alert  

 






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